What are the ethical and accounting ramifications of incorrectly capitalizing an item?© BrainMass Inc. brainmass.com June 3, 2020, 10:00 pm ad1c9bdddf
There can be several problems with an improperly applied capitalization policy. First, an explanation of what a capitalization policy is: In the strict definition of an asset, it is an item with a life beyond one year. If the policy is followed strictly, a new stapler would qualify as an asset because it certainly will last beyond one year. To modify the rules, the concept of materiality has been introduced to allow a new stapler to be expensed, because it simply isn't material enough to capitalize, ...
The solution first explains how companies develop a policy for deciding what to capitalize and what to expense. There are some examples for application of the a policy. Next the solution give five business conditions and the ultimate effects to the organization for the improper capitlization.