Capitalisation and Depreciation Objective:
To ensure that each asset purchase has been correctly registered. That is the recordation of its cost as an asset rather than an expense at the time of purchase. The amortisation is subsequently recorded as an expense.
Capitalisation is the method chosen to record the purchase of a fixed asset on a Company’s accounting books. If an asset is capitalised, then it is not recorded as an expense in the same year that it is purchased. Instead, the asset is generally recorded on the balance sheet and individually on an asset schedule. Examples of capital expenditures are purchases of land, buildings, machinery, office equipment, leasehold improvements, and vehicles. The asset is expensed each year as depreciation.
- All assets (except for land) with a useful life of greater than one year and with a cost of more than S$1,000 will be capitalised and will be recorded in the depreciation records. Any asset that does not meet the above criteria will be recorded as an expense. Examples of this are non-capitalised office equipment or repairs and maintenance.
- The cost basis of furniture and equipment assets will include all charges relating to the purchase of the asset including the purchase price, freight charges and installation, if applicable. It is the total amount invested in the purchase or the total amount paid.
- Leasehold improvements, including painting, are to be capitalised if they relate to the occupancy of a new office or a major renovation of an existing office. Expenditures incurred in connection with maintaining an existing facility in good working order should be recorded as a repair expense.
Depreciation is an expense that allows the write-down or write-off of the cost of an asset over its estimated useful life. It is an allowance expense for the wear and tear, age, deterioration, or obsolescence of the property.
- A land is not depreciated because land does not wear out, become obsolete, or get used up.
- Fixed Asset Depreciation is run every month as part of the Book Closing Process.
- PIKOHANA ensures that each asset purchase is correctly registered in the accounting system.
- Before running the monthly depreciation for a client, the Fixed Asset Settings are reviewed and updated to ensure that an asset's useful life is correctly recorded in accordance with the Depreciation Schedule.
Useful Life / Depreciable Period and Asset Description
3 Years - Computer Hardware and Software
3 Years - Office Equipment
3 Years - Furniture and Fixtures
3 Years or the remaining life of the lease (whichever is shorter) - Leasehold Improvements