Meaning of the term Capitalisation
Posted: October 6th, 2018, 5:23 pm
I was trying to get my head around what things in a business are tax-deductible and what's not, and the term "capitalised" reared it's head.
Some stuff/terminology from the capital expenditure wiki page as follows:
Accounting rules
For tax purposes, capex is a cost that cannot be deducted in the year in which it is paid or incurred and must be capitalized. The general rule is that if the acquired property's useful life is longer than the taxable year, then the cost must be capitalized. The capital expenditure costs are then amortized or depreciated over the life of the asset in question. Further to the above, capex creates or adds basis to the asset or property, which once adjusted, will determine tax liability in the event of sale or transfer.
I've heard this term mentioned elsewhere, i.e. capitalisation of profits.
The capitalization of profits refers to the process of converting a company's retained earnings, which represent the profits held in the business over time, into capital stock. The capitalization of profits process involves issuing a stock dividend, or bonus shares, to existing shareholders. This allocation is done proportionally to existing stockholder ownership levels, similar to a rights issue.
So I'm guessing, all the term really means is "turning this into an asset".
Correct?
Some stuff/terminology from the capital expenditure wiki page as follows:
Accounting rules
For tax purposes, capex is a cost that cannot be deducted in the year in which it is paid or incurred and must be capitalized. The general rule is that if the acquired property's useful life is longer than the taxable year, then the cost must be capitalized. The capital expenditure costs are then amortized or depreciated over the life of the asset in question. Further to the above, capex creates or adds basis to the asset or property, which once adjusted, will determine tax liability in the event of sale or transfer.
I've heard this term mentioned elsewhere, i.e. capitalisation of profits.
The capitalization of profits refers to the process of converting a company's retained earnings, which represent the profits held in the business over time, into capital stock. The capitalization of profits process involves issuing a stock dividend, or bonus shares, to existing shareholders. This allocation is done proportionally to existing stockholder ownership levels, similar to a rights issue.
So I'm guessing, all the term really means is "turning this into an asset".
Correct?