- PurposeThis accounting policy establishes the minimum cost (capitalization amount) that shall be used to determine the capital assets that are to be recorded in ABC Company’s annual financial statements (or books).
- Capital Asset definitionA “Capital Asset” is defined as a unit of property that: (1) has an economic useful life that extends beyond 12 months; and (2) was acquired or produced for a cost of more than $2,500. Capital Assets must be capitalized and depreciated for financial statement (or bookkeeping) purposes.
- Capitalization thresholdsABC Company’s establishes $2,500 as the threshold amount for minimum capitalization. Any items costing below this amount should be expensed in ABC Company’s financial statements (or books).
- Capitalization method and procedureAll Capital Assets are recorded at historical cost as of the date acquired.
Tangible assets costing below the aforementioned threshold amount are recorded as an expense for ABC Company’s annual financial statements. Alternatively, assets with an economic useful life of 12 months or less are required to be expensed for financial statement purposes, regardless of the acquisition or production cost.
- RecordkeepingInvoices substantiating the acquisition cost of each unit of property shall be retained for a minimum of four years.