Capitalised
Recorded as an asset rather than expensed at once, then released to the income statement over the periods it benefits. Early profit is higher, and the cash spent sits in investing rather than operating activities.
Where you will meet it
Capitalised appears in 7 learning outcomes on the CFA syllabus. A few of them:
- Say when expenses are recognised and how matching works
“Costs that cannot be matched to specific revenue are recognised as incurred, and costs that provide benefits over several periods are capitalised and allocated across them.”
- Value a private firm using methods based on income
“The capitalised cash flow method suits mature companies with stable growth: value = FCF1 ÷ (r − g).”
- Explain the signs that indicate earnings quality
“Revenue recognised through bill-and-hold deals or gross rather than net reporting deserves scrutiny, as do expenses pushed into capitalised costs.”
- Assess a company's exposure to ESG risks and the investment opportunities ESG creates for it
“For example, 2.4 million tonnes at 40 with half passed on costs 48 before tax, 36 after tax; capitalised at 9% that is 400 of value.”
Practise it
Practise capitalised until it is automatic: questions that explain every wrong option.
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