postgraduate student at Harvard Extension School, Cambridge, MA, USA.

Capital and operating costs are the two main types of costs in the business cycle of an enterprise. These costs differ from each other in nature and in the method of their recognition in both accounting and tax accounting.

Capital expenditure, or CAPEX (short for capital expenditure), is the cost of acquiring non-current assets, as well as for their modification (completion, additional equipment, reconstruction) and modernization.

The main characteristic of capital costs is the duration of their use. If a company plans to use investments in assets for more than one year, then it is likely that they will be classified as CAPEX. What counts as a capital expenditure for a company depends largely on both the scope of its activities and the established rules of its industry. For example, for one company capital investment will be considered the purchase of a new printer, for another - the acquisition of a license, and for the third capital investment will be the purchase or construction of a new office building. In practice, capital expenditures for a company are most often investments in fixed assets and are not tangible assets.

Capital expenditures are accounted for under IFRS in accordance with IAS 16 Property, Plant and Equipment, IAS 23 Borrowing Costs, IAS 38 Intangible Assets.

Operating expenses, or OPEX (abbreviated from the English operational expenditure), are the costs of the company that arise in the course of its current activities. Examples of operating costs are production costs, selling, administrative, management expenses etc. The main task of the top managers of the company is tight control, and often the reduction of operating costs in parallel with the increase in the company's income. Thus, the share of operating expenses in relation to the company's revenue is always an indicator of the effectiveness of the company's management.

In accounting, CAPEX leads to the capitalization of costs on the balance sheet of the enterprise, which, in turn, increases the value of assets and the net profit of the enterprise of the reporting period (since the costs incurred in the current period are capitalized and then amortized over several years). However, cost capitalization also has disadvantages. First, the company will pay a large amount income tax. Secondly, the company is required to test its assets for impairment on a regular basis.

Recognition of OPEX in accounting results in a reduction net profit current period, but at the same time, the company pays a smaller amount of income tax.

In practice, in about 80% of cases, the company immediately determines what type certain costs belong to. Discussions arise about the remaining 20%. Let's take a look at the most frequently asked questions.

fixed assets

If a company acquires an expensive fixed asset that it plans to use for several years, then the question of capitalization of this fixed asset most often does not arise. But if a company purchases a large batch of low-cost items or spare parts for an existing fixed asset, or incurs costs for inseparable improvements in rented premises, then accounting for these costs is difficult. What to do with them? Capitalize, recognize as inventory or immediately write off to the expenses of the current period?

In order to understand this, it is necessary to return to the definition of property, plant and equipment in accordance with IAS 16 Property, Plant and Equipment.

Fixed assets are tangible assets that:

are intended for use in the process of production or supply of goods and services, for leasing or for administrative purposes;
intended to be used over more than one reporting period.

The standard also clarifies when we should recognize an asset. A property, plant and equipment shall be recognized as an asset only if:

it is probable that the enterprise will receive related to this object future economic benefits;
price given object can be reliably estimated.

Thus, when deciding whether an item is a property, plant and equipment for accounting purposes, an entity should keep the following characteristics in mind:

purpose of the object (production, provision of services, leasing, etc.);
the expected period of use of this object;
the likelihood of obtaining future economic benefits from the use of this facility;
opportunity to assess the value of the object.

In practice, it is not always possible to classify an object as a fixed asset based on the above characteristics. In these cases, the company must use professional judgment and the principle of materiality.

So, let's look at some of the nuances.

Capitalize or recognize in current period expenses inexpensive
homogeneous objects purchased in large volumes?

Very often, companies purchase inexpensive homogeneous objects in large quantities. For example, tools, communication devices, furniture, office equipment, etc.

The cost of one such object may be insignificant (for example, 1 thousand rubles), but the total cost of a batch of objects may be very significant for the company. What to do in such cases? Recognize these objects as CAPEX or OPEX?

There is no single answer. IAS 16 in paragraph 9 says that the standard does not define the unit of measure that should be used when recognizing an item as property, plant and equipment. This means that in some cases a company may combine minor similar items into one fixed asset with an aggregated value. In every separate case the company will need to exercise professional judgment. It is only important to remember that the estimated time beneficial use such objects should be approximately the same and exceed 12 months.

Example 1
The Monet coffee shop bought 100 identical chairs for 5,000 rubles each. a piece. The managing manager of the coffee shop plans to use these chairs in the new, renovated coffee shop for his customers for about three years. How to account for the costs incurred - as part of CAPEX or OPEX?

First of all, you need to understand whether the costs incurred satisfy the requirements of IAS 16 for recognition as property, plant and equipment. Consider table 1.

Table 1

Characteristics fixed asset	Object: chairs (100 pieces)	Performance criteria for recognition of the OS
1. Purpose of the object	Chairs are for visitors coffee shops and will be used in her current operating activities	There is
2. Estimated period	Three years	There is
3. Probability of getting future economic benefits from the use this object	since the chairs will be used by visitors in current operating activities the coffee shop that brings the main revenue	There is
4. Ability to evaluate object cost	The cost of a batch of chairs, which is 500 thousand rubles, economically justified and documented	There is

Based on paragraph 9 of IAS 16 and our professional judgment, Chief Accountant coffee house "Monet" decided to capitalize the entire batch of chairs as one item of fixed assets with an aggregated value of 500 thousand rubles. and a useful life of three years. This solution expediently and taking into account the fact that the chairs will be used in the current activities of the enterprise, which brings the main revenue.

Capitalize or recognize spare parts as a current period expense?

On the this question There is also no clear answer. Purchase of spare parts should be considered on a case-by-case basis and professional judgment should be used.

In most cases, spare parts, such as consumables or small parts, are treated as inventory under IAS 2 Inventory and are recognized as operating expenses when they are used up.

However, there are situations when the cost of spare parts may be capitalized, that is, recognized as part of property, plant and equipment. In this case we are talking about expensive spare parts of some fixed assets. For example, a company can capitalize on engines for water and air transport, spare parts for expensive production machines, aircraft seats, etc. When registering such spare parts, it is important to remember that they are likely to be capitalized separately from the main item of property, plant and equipment. For example, if the useful life of an engine is five years and the remaining life of an aircraft is eight years, then the engine would be treated as a separate fixed asset with a depreciation period of five years when the aircraft is replaced. The aircraft will be depreciated over the remaining eight years. Wherein book value replacement engine is subject to derecognition in accordance with paragraphs. 67-72 IAS 16.

Capitalize or recognize in the current period the cost of inseparable improvements in the leased premises?

Currently, most companies rent premises for offices or production facilities. It often happens that the rented premises do not suit the tenants at all, so they carry out its reconstruction, repair and various improvements at their own expense.

Example 2
Management Company Monet, a chain of coffee houses, decided to reorganize the rented office and add two more offices: for a senior manager and a chief accountant. During the reconstruction, additional partitions were erected and glass doors were installed. These improvements are inseparable from the leased premises: as soon as the lease expires, the company will not be able to use these offices. It will also not be possible to dismantle them and use the remaining material elsewhere, since dismantling will cause significant damage to the rented premises.

So how do you account for the costs incurred - as part of CAPEX or OPEX? As we said earlier, there is no universal answer here, it all depends on the specific situation. First you need to understand whether the costs incurred satisfy the requirements of IAS 16 for recognition as property, plant and equipment. Consider table 2.

table 2

Characteristics fixed asset in accordance with IAS 16	Object: inseparable improvements for the construction of two offices in rented premises	Performance criteria for OS recognition
1. Purpose of the object	Cabinet use for the current operating senior manager activities and chief accountant	There is
2. Estimated period use of this object	For the remainder of the term lease, i.e. 9 years	There is
3. Probability of getting future economic benefits from using this object	The likelihood of receiving benefits is high, since the presence of offices will allow use the rented space more effective	There is
4. Ability to evaluate object cost	The cost of the costs, which is 1.5 million rubles, economically justified and documented confirmed	There is

Since these costs meet all the requirements of IAS (IAS) 16, the company can capitalize them and recognize them as an item of property, plant and equipment.

When capitalizing inseparable improvements, useful life often raises questions. In most cases, the useful life cannot exceed the lease term of the premises. However, non-standard situations are also possible.

Example 3
The company leases premises from a parent company or from a company that is controlled by the same shareholders (that is, they are related parties or companies under common control). A standard lease is concluded for five years and then automatically renewed. The tenant has refurbished the premises. The Company has estimated that the permanent improvements to the leased premises have a useful life of eight years. Can the company set a longer useful life (eight years) than the lease term of the premises (five years)? In this case, it is necessary to carefully analyze the lease agreement. If the company plans to lease the premises for at least eight years and the contract provides for an automatic renewal of the lease after five years (i.e. there is a high probability, over 95%, that the contract will be renewed after five years), then the company has the right to depreciate inseparable improvements over eight years.

Intangible assets

Discussions about recognizing costs as intangible assets or writing them off to profit or loss most often occur at the stages of research, development, creation and launch of intangible assets into production or in the process of providing services. Whether costs will be recognized as CAPEX or as OPEX depends on many conditions.

First you need to understand what an intangible asset is. Under IAS 38 Intangible Assets, an intangible asset is an identifiable non-monetary asset that has no physical form.

“An asset satisfies the identifiability criterion if it:

is severable, meaning it can be detached or separated from the entity and sold, transferred, licensed, leased or exchanged individually or together with a related contract, asset or liability, whether or not the entity intends to do so;
is the result of contractual or other legal rights, whether or not these rights are transferable or separable from the enterprise or from other rights and obligations.”

IAS 38 defines the conditions for recognizing an intangible asset:

“An intangible asset is recognized when, and only when:

it is considered probable that the entity will receive future economic benefits associated with the item;
the cost of the asset can be estimated reliably.”

Examples of intangible assets are trade marks, patents, copyrights, licenses, computer software, etc.

Consider the procedure for recognizing costs associated with the creation of your own intangible asset within the company. For accounting purposes, IAS 38 divides the process of creating an intangible asset within an entity into two main parts:

research stage;
development stage.

Research stage

All costs that an entity incurs during the exploration phase are recognized as an expense when they are incurred.

Examples of activities in the research phase are:

activities aimed at obtaining new knowledge;
search, evaluation and final selection of areas of application of research results or other knowledge;
search for alternative materials, devices, products, processes, systems or services;
formulation, design, evaluation and final selection of possible alternatives to new or improved materials, devices, products, processes, systems or services.

All costs in the exploration stage are recognized as OPEX because, at this stage, the company cannot demonstrate with a high degree of certainty that it has successfully created an intangible asset that will be capable of delivering future economic benefits to the company.

Development stage

At this stage, the company already with a high degree of probability can identify the intangible asset and prove that it is capable of generating future economic benefits.

Examples of activities in the development phase might include:

design, construction and testing of prototypes and models before production or use;
designing tools, templates, molds and dies that involve new technology;
design, construction and testing of selected alternatives to new or improved materials, devices, products, processes, systems or services.

The company has the right to start capitalizing development stage costs only if it demonstrates the implementation all the following criteria:

the technical feasibility of completing the creation of the intangible asset so that it can be used or sold;
the intention to complete the creation of the intangible asset and use or sell it;
the ability to use or sell an intangible asset;
how the intangible asset will generate probable future economic benefits [the entity must demonstrate that there is a market for the products of the intangible asset, or the intangible asset itself, and estimate the future economic benefits from the asset using the principles of IAS 36 Impairment of Assets; if the asset is intended to be used for internal purposes, then it is necessary to prove the usefulness of such an intangible asset for the company];
availability of sufficient technical, financial and other resources to complete the development, use or sale of an intangible asset (an example may be a developed and approved business plan and / or confirmation of external creditors about the readiness to finance the development and use of the created intangible asset);
the ability to reliably estimate the costs attributable to an intangible asset during its development.

After a company demonstrates that all six of the above criteria are met, it has the right to attribute to the cost of an asset all costs directly related to the creation, production and preparation of this asset for use, namely:

costs of materials and services used or consumed in the creation of an intangible asset;
employee benefit costs [as the term is defined in IAS 19] arising from the creation of an intangible asset;
payments required for registration legal law;
amortization of patents and licenses used to create an intangible asset.

IAS 23 establishes the criteria for recognizing interest as part of the cost of an entity-created intangible asset.

However, some costs can not be attributed to the initial cost of the created intangible asset and are subject to recognition in expenses as they arise. These are:

selling, administrative and other general overhead costs, other than those that can be attributed directly to preparing the asset for use;
initial operating losses, as well as losses associated with the internal inefficiency of the process of creating an asset that arose before the planned level of productivity of the specified asset is reached;
the cost of training personnel to work with the created intangible asset.

All costs incurred after the recognition of the created intangible object in accounting and the start of its operation are recognized as expenses as incurred.

It should be remembered that, in accordance with paragraph 64 of IAS 38, the costs of trademarks, title data, publishing rights, customer lists and similar items created by the entity itself cannot be distinguished from the costs of developing the business as a whole. Therefore, such items are not recognized as intangible assets. Also, goodwill generated by the entity itself is not recognized as an intangible asset in accordance with paragraph 48 of IAS 38.

Table 3

Stages of creation of intangible assets
inside the company

СAPEX

OPEX

Capital expenditures, or CAPEX (abbreviated from the English capital expenditure), are the costs of acquiring non-current assets, as well as their modification (completion, additional equipment, reconstruction) and modernization.

The main characteristic of capital costs is the duration of their use. If a company plans to use investments in assets for more than one year, then it is likely that they will be classified as CAPEX. What counts as a capital expenditure for a company depends largely on both the scope of its activities and the established rules of its industry. For example, for one company, the capital investment would be the purchase of a new printer, for another, the purchase of a license, and for a third, the capital investment would be the purchase or construction of a new office building. In practice, capital expenditures for a company are most often investments in fixed assets and intangible assets.

Capital expenditures are accounted for under IFRS in accordance with IAS 16 Property, Plant and Equipment, IAS 23 Borrowing Costs, IAS 38 Intangible Assets.

Operating expenses, or OPEX (abbreviated from the English operational expenditure), are the costs of the company that arise in the course of its current activities. Examples of operating costs are the cost of production, commercial, administrative, etc. The main task of the company's top managers is to tightly control, and often reduce operating costs in parallel with increasing the company's income. Thus, the share of operating expenses in relation to the company's revenue is always an indicator of the effectiveness of the company's management.

In accounting, CAPEX leads to the capitalization of costs on the balance sheet of the enterprise, which, in turn, increases the value of assets and the net profit of the enterprise of the reporting period (since the costs incurred in the current period are capitalized and then amortized over several years). However, cost capitalization also has disadvantages. First, the company will pay a large amount of income tax. Secondly, the company is required to test its assets for impairment on a regular basis.

The recognition of OPEX in accounting results in a decrease in the current period's net income, but at the same time, the company pays a smaller amount of income tax.

fixed assets

If a company acquires an expensive fixed asset that it plans to use for several years, then the question of capitalization of this fixed asset most often does not arise. But if a company purchases a large batch of low-cost facilities or spare parts for an existing fixed asset, or incurs costs in rented premises, then accounting for these costs is difficult. What to do with them? Capitalize, recognize as inventory or immediately write off to the expenses of the current period?

In order to understand this, it is necessary to return to the definition of property, plant and equipment in accordance with IAS 16 Property, Plant and Equipment.

Fixed assets are tangible assets that:

are intended for use in the process of production or supply of goods and services, for leasing or for administrative purposes;
intended to be used over more than one reporting period.

The standard also clarifies when we should recognize an asset. A property, plant and equipment shall be recognized as an asset only if:

it is probable that the enterprise will receive related to this object future economic benefits;
price given object can be reliably estimated.

Thus, when deciding whether an item is a property, plant and equipment for accounting purposes, an entity should keep the following characteristics in mind:

purpose of the object (production, provision of services, leasing, etc.);
the expected period of use of this object;
the likelihood of obtaining future economic benefits from the use of this facility;
opportunity to assess the value of the object.

So, let's look at some of the nuances.

Capitalize or recognize in the expenses of the current period inexpensive homogeneous objects acquired in large volumes?

Very often, companies purchase inexpensive homogeneous objects in large quantities. For example, tools, communication devices, furniture, office equipment, etc.

There is no single answer. IAS 16 in paragraph 9 says that the standard does not define the unit of measure that should be used when recognizing an item as property, plant and equipment. This means that in some cases a company may combine minor similar items into one fixed asset with an aggregated value. In each individual case, the company will need to exercise professional judgment. It is only important to remember that the estimated time of such objects should be approximately the same and exceed 12 months.

Example 1

The Monet coffee shop bought 100 identical chairs for 5,000 rubles each. a piece. The managing manager of the coffee shop plans to use these chairs in the new, renovated coffee shop for his customers for about three years. How to account for the costs incurred - as part of CAPEX or OPEX?
First of all, you need to understand whether the costs incurred satisfy the requirements of IAS 16 for recognition as property, plant and equipment. Consider table 1.

Table 1

Characteristics fixed asset	Object: chairs (100 pieces)	Performance criteria for OS recognition
1. Purpose of the object	Chairs are for visitors coffee shops and will be used in its current operations	There is
2. Estimated period	Three years	There is
3. Probability of getting future economic benefits from the use this object	since the chairs will be used by visitors in current operating activities the coffee shop that brings the main revenue	There is
4. Ability to evaluate object cost	The cost of a batch of chairs, which is 500 thousand rubles, economically justified and documented	There is

Based on paragraph 9 of IAS 16 and his professional judgment, the chief accountant of the Monet coffee house decided to capitalize the entire batch of chairs as one item of property, plant and equipment with an aggregate cost of 500 thousand rubles. and a useful life of three years. This decision is expedient and taking into account the fact that the chairs will be used in the current activities of the enterprise, which brings the main revenue.

Capitalize or recognize spare parts as a current period expense?

There is also no clear answer to this question. Purchase of spare parts should be considered on a case-by-case basis and professional judgment should be used.

In most cases, spare parts, such as consumables or small parts, are treated as inventory under IAS 2 Inventory and are recognized as operating expenses when they are used up.

However, there are situations when the cost of spare parts may be capitalized, that is, recognized as part of property, plant and equipment. In this case, we are talking about expensive spare parts of some fixed assets. For example, a company may capitalize engines for water and air vehicles, spare parts for expensive manufacturing machines, aircraft seats, etc. When listing such spare parts, it is important to remember that they are likely to be capitalized separately from the main item of property, plant and equipment. For example, if the useful life of an engine is five years and the remaining life of an aircraft is eight years, the engine would be treated as a separate fixed asset with a depreciation period of five years when the aircraft is replaced. The aircraft will be depreciated over the remaining eight years. In this case, the carrying amount of the replaced engine is subject to derecognition in accordance with paragraphs. 67–72 IAS 16.

Capitalize or recognize in the current period the cost of inseparable improvements in the leased premises?

Example 2

The management company of the Monet coffee shop chain decided to reorganize the rented office and add two more offices: for a senior manager and a chief accountant. During the reconstruction, additional partitions were erected and glass doors were installed. These improvements are inseparable from the leased premises: as soon as the lease expires, the company will not be able to use these offices. It will also not be possible to dismantle them and use the remaining material elsewhere, since dismantling will cause significant damage to the rented premises.
So how do you account for the costs incurred - as part of CAPEX or OPEX? As we said earlier, there is no universal answer here, it all depends on the specific situation. First you need to understand whether the costs incurred satisfy the requirements of IAS 16 for recognition as property, plant and equipment. Consider table 2.

table 2

Characteristics fixed asset in accordance with IAS 16	Object: inseparable improvements for the construction of two offices in rented premises	Performance criteria for OS recognition
1. Purpose of the object	Cabinet use for the current operating senior manager activities and chief accountant	There is
2. Estimated period use of this object	For the remainder of the term lease, i.e. 9 years	There is
3. Probability of getting future economic benefits from using this object	The likelihood of receiving benefits is high, since the presence of offices will allow use the rented space more effective	There is
4. Ability to evaluate object cost	The cost of the costs, which is 1.5 million rubles, economically justified and documented confirmed	There is

Since these costs meet all the requirements of IAS (IAS) 16, the company can capitalize them and recognize them as an item of property, plant and equipment.

Example 3

The company leases premises from a parent company or from a company that is controlled by the same shareholders (that is, they are related parties or companies under common control). A standard lease is concluded for five years and then automatically renewed. The tenant has refurbished the premises. The Company has estimated that the permanent improvements to the leased premises have a useful life of eight years. Can the company set a longer useful life (eight years) than the lease term of the premises (five years)? In this case, it is necessary to carefully analyze the lease agreement. If the company plans to lease the premises for at least eight years and the contract provides for an automatic renewal of the lease after five years (i.e. there is a high probability, over 95%, that the contract will be renewed after five years), then the company has the right to depreciate inseparable improvements over eight years.

Intangible assets

Discussions about recognizing costs as intangible assets or writing them off to profit or loss most often arise at the stages of research, development, creation and launch of intangible assets into production or in the process of providing services. Whether costs are recognized as CAPEX or as OPEX depends on many conditions.

First you need to understand what an intangible asset is. Under IAS 38 Intangible Assets, an intangible asset is an identifiable non-monetary asset that has no physical form.

“An asset satisfies the identifiability criterion if it:

is severable, meaning it can be detached or separated from the entity and sold, transferred, licensed, leased or exchanged individually or together with a related contract, asset or liability, whether or not the entity intends to do so;
is the result of contractual or other legal rights, whether or not these rights are transferable or separable from the enterprise or from other rights and obligations.”

IAS 38 defines the conditions for recognizing an intangible asset:

“An intangible asset is recognized when, and only when:

it is considered probable that the entity will receive future economic benefits associated with the item;
the cost of the asset can be estimated reliably.”

Examples of intangible assets are trademarks, patents, copyrights, licenses, computer software, etc.

research stage;
development stage.

Research stage

All costs that an entity incurs during the exploration phase are recognized as an expense when they are incurred.

Examples of activities in the research phase are:

activities aimed at obtaining new knowledge;
search, evaluation and final selection of areas of application of research results or other knowledge;
search for alternative materials, devices, products, processes, systems or services;
formulation, design, evaluation and final selection of possible alternatives to new or improved materials, devices, products, processes, systems or services.

Development stage

At this stage, the company already with a high degree of probability can identify the intangible asset and prove that it is capable of generating future economic benefits.

Examples of activities in the development phase might include:

design, construction and testing of prototypes and models before production or use;
designing tools, templates, molds and stamps that involve new technology;
design, construction and testing of selected alternatives to new or improved materials, devices, products, processes, systems or services.

The company has the right to start capitalizing development stage costs only if it demonstrates the implementation all the following criteria:

the technical feasibility of completing the creation of the intangible asset so that it can be used or sold;
the intention to complete the creation of the intangible asset and use or sell it;
the ability to use or sell an intangible asset;
how the intangible asset will generate probable future economic benefits [the entity must demonstrate that there is a market for the products of the intangible asset, or the intangible asset itself, and estimate the future economic benefits from the asset using the principles of IAS 36 Impairment of Assets; if the asset is intended to be used for internal purposes, then it is necessary to prove the usefulness of such an intangible asset for the company];
availability of sufficient technical, financial and other resources to complete the development, use or sale of an intangible asset (an example may be a developed and approved business plan and / or confirmation of external creditors about the readiness to finance the development and use of the created intangible asset);
the ability to reliably estimate the costs attributable to an intangible asset during its development.

costs of materials and services used or consumed in the creation of an intangible asset;
employee benefit costs [as the term is defined in IAS 19] arising from the creation of an intangible asset;
payments required to register a legal right;
amortization of patents and licenses used to create an intangible asset.

IAS 23 establishes the criteria for recognizing interest as part of the cost of an entity-created intangible asset.

However, some costs can not be attributed to the initial cost of the created intangible asset and are subject to recognition in expenses as they arise. These are:

selling, administrative and other general overhead costs, other than those that can be attributed directly to preparing the asset for use;
initial operating losses, as well as losses associated with the internal inefficiency of the process of creating an asset that arose before the planned level of productivity of the specified asset is reached;
the cost of training personnel to work with the created intangible asset.

All costs incurred after the recognition of the created intangible object in accounting and the start of its operation are recognized as expenses as incurred.

Table 3

Stages of creation of intangible assets
inside the company

IFRS: training, methodology and implementation practice for companies and professionals

A joint project of the IPA of Russia and the journal “Corporate Financial Reporting. International Standards".

Capital expenditures or operating expenses (CAPEX or OPEX)? Opportunities for cost capitalization

PhD student at Harvard Extension School, Cambridge, MA, USA.

The main characteristic of capital costs is the duration of their use. If a company plans to use investments in assets for more than one year, then it is likely that they will be classified as CAPEX. What counts as a capital expenditure for a company depends largely on both the scope of its activities and the established rules of its industry. For example, for one company, the capital investment would be the purchase of a new printer, for another, the acquisition of a license, and for a third, the capital investment would be the purchase or construction of a new office building. In practice, capital expenditures for a company are most often investments in fixed assets and intangible assets.

Capital expenditures are accounted for under IFRS in accordance with IAS 16 Property, Plant and Equipment, IAS 23 Borrowing Costs, IAS 38 Intangible Assets.

Operating expenses, or OPEX (abbreviated from the English operational expenditure), are the costs of the company that arise in the course of its current activities. Examples of operating costs are the cost of production, commercial, administrative, management expenses, etc. The main task of the company's top managers is tight control, and often reducing operating costs in parallel with increasing the company's income. Thus, the share of operating expenses in relation to the company's revenue is always an indicator of the effectiveness of the company's management.

In accounting, CAPEX leads to the capitalization of costs on the balance sheet of the enterprise, which, in turn, increases the value of assets and the net profit of the enterprise of the reporting period (since the costs incurred in the current period are capitalized and then amortized over several years). However, cost capitalization also has disadvantages. First, the company will pay a large amount of income tax. Secondly, the company is required to test its assets for impairment on a regular basis.

The recognition of OPEX in accounting results in a decrease in the current period's net income, but at the same time, the company pays a smaller amount of income tax.

fixed assets

In order to understand this, it is necessary to return to the definition of property, plant and equipment in accordance with IAS 16 Property, Plant and Equipment.

Fixed assets are tangible assets that:

are intended for use in the process of production or supply of goods and services, for leasing or for administrative purposes;
expected to be used during more than one reporting period.

The standard also clarifies when we should recognize an asset. A property, plant and equipment shall be recognized as an asset only if:

it is probable that the enterprise will receive related to this object future economic benefits;
price given object can be reliably estimated.

Thus, when deciding whether an item is a property, plant and equipment for accounting purposes, an entity should keep the following characteristics in mind:

purpose of the object (production, provision of services, leasing, etc.);
the expected period of use of this object;
the likelihood of obtaining future economic benefits from the use of this facility;
opportunity to assess the value of the object.

So, let's look at some of the nuances.

Capitalize or recognize in the expenses of the current period inexpensive homogeneous objects acquired in large volumes?

Very often, companies purchase inexpensive homogeneous objects in large quantities. For example, tools, communication devices, furniture, office equipment, etc.

There is no single answer. IAS 16 in paragraph 9 says that the standard does not define the unit of measure that should be used when recognizing an item as property, plant and equipment. This means that in some cases a company may combine minor similar items into one fixed asset with an aggregated value. In each individual case, the company will need to exercise professional judgment. It is only important to remember that the expected useful life of such objects should be approximately the same and exceed 12 months.

Example 1
The Monet coffee shop bought 100 identical chairs for 5,000 rubles each. a piece. The managing manager of the coffee shop plans to use these chairs in the new, renovated coffee shop for his customers for about three years. How to account for the costs incurred - as part of CAPEX or OPEX? First of all, you need to understand whether the costs incurred satisfy the requirements of IAS 16 for recognition as property, plant and equipment. Consider table 1.

Table 1

Characteristics of property, plant and equipment in accordance with IAS 16	Object: chairs (100 pieces)	Fulfillment of the criterion for recognition of OS
1. Purpose of the object	The chairs are intended for visitors to the coffee shop and will be used in its current operations.	There is
2. Estimated period of use of this object	Three years	There is
3. Probability of obtaining future economic benefits from the use of this facility	Benefits are highly likely as the chairs will be used by patrons in the coffee shop's ongoing operating activities, which generate the bulk of the revenue	There is
4. Ability to assess the value of the object	The cost of a batch of chairs, amounting to 500 thousand rubles, is economically justified and documented	There is

Capitalize or recognize spare parts as a current period expense?

There is also no clear answer to this question. Purchase of spare parts should be considered on a case-by-case basis and professional judgment should be used.

In most cases, spare parts, such as consumables or small parts, are treated as inventory under IAS 2 Inventory and are recognized as operating expenses when they are used up.

However, there are situations when the cost of spare parts may be capitalized, that is, recognized as part of property, plant and equipment. In this case, we are talking about expensive spare parts of some fixed assets. For example, a company may capitalize engines for water and air vehicles, spare parts for expensive manufacturing machines, aircraft seats, etc. When listing such spare parts, it is important to remember that they are likely to be capitalized separately from the main item of property, plant and equipment. For example, if the useful life of an engine is five years and the remaining life of an aircraft is eight years, then the engine would be treated as a separate fixed asset with a depreciation period of five years when the aircraft is replaced. The aircraft will be depreciated over the remaining eight years. In this case, the carrying amount of the replaced engine is subject to derecognition in accordance with paragraphs. 67-72 IAS 16.

Capitalize or recognize in the current period the cost of inseparable improvements in the leased premises?

Example 2

The management company of the Monet coffee shop chain decided to reorganize the rented office and add two more offices: for a senior manager and a chief accountant. During the reconstruction, additional partitions were erected and glass doors were installed. These improvements are inseparable from the leased premises: as soon as the lease expires, the company will not be able to use these offices. It will also not be possible to dismantle them and use the remaining material elsewhere, since dismantling will cause significant damage to the rented premises.

So how do you account for the costs incurred - as part of CAPEX or OPEX? As we said earlier, there is no universal answer here, it all depends on the specific situation. First you need to understand whether the costs incurred satisfy the requirements of IAS 16 for recognition as property, plant and equipment. Consider table 2.

table 2

Characteristics of property, plant and equipment in accordance with IAS 16	Object: inseparable improvements for the construction of two offices in a rented premises	Fulfillment of the criterion for recognition of OS
1. Purpose of the object	Use of offices for the current operational activities of the senior manager and chief accountant	There is
2. Estimated period of use of this object	For the remainder of the lease, i.e. 9 years	There is
3. Probability of obtaining future economic benefits from the use of this facility	The likelihood of receiving benefits is high, since the presence of offices will allow you to use the rented premises more efficiently	There is
4. Ability to assess the value of the object	The cost of expenses, amounting to 1.5 million rubles, is economically justified and documented	There is

Since these costs meet all the requirements of IAS (IAS) 16, the company can capitalize them and recognize them as an item of property, plant and equipment.

Example 3

The company leases premises from a parent company or from a company that is controlled by the same shareholders (that is, they are related parties or companies under common control). A standard lease is concluded for five years and then automatically renewed. The tenant has refurbished the premises. The Company has estimated that the permanent improvements to the leased premises have a useful life of eight years. Can the company set a longer useful life (eight years) than the lease term of the premises (five years)? In this case, it is necessary to carefully analyze the lease agreement. If the company plans to lease the premises for at least eight years and the contract provides for an automatic renewal of the lease after five years (i.e. there is a high probability, over 95%, that the contract will be renewed after five years), then the company has the right to depreciate inseparable improvements over eight years.

Intangible assets

Discussions about recognizing costs as intangible assets or writing them off to profit or loss most often arise at the stages of research, development, creation and launch of intangible assets into production or in the process of providing services. Whether costs will be recognized as CAPEX or as OPEX depends on many conditions.

First you need to understand what an intangible asset is. Under IAS 38 Intangible Assets, an intangible asset is an identifiable non-monetary asset that has no physical form.

“An asset satisfies the identifiability criterion if it:

is severable, meaning it can be detached or separated from the entity and sold, transferred, licensed, leased or exchanged individually or together with a related contract, asset or liability, whether or not the entity intends to do so;
is the result of contractual or other legal rights, whether or not these rights are transferable or separable from the enterprise or from other rights and obligations.”

IAS 38 defines the conditions for recognizing an intangible asset:

“An intangible asset is recognized when, and only when:
it is considered probable that the entity will receive future economic benefits associated with the item;
the cost of the asset can be estimated reliably.”

Examples of intangible assets are trademarks, patents, copyrights, licenses, computer software, etc.

research stage;
development stage.

Research stage

All costs that an entity incurs during the exploration phase are recognized as an expense when they are incurred.

Examples of activities in the research phase are:

activities aimed at obtaining new knowledge;
search, evaluation and final selection of areas of application of research results or other knowledge;
search for alternative materials, devices, products, processes, systems or services;
formulation, design, evaluation and final selection of possible alternatives to new or improved materials, devices, products, processes, systems or services.

Development stage

At this stage, the company already with a high degree of probability can identify the intangible asset and prove that it is capable of generating future economic benefits.

Examples of activities in the development phase might include:

design, construction and testing of prototypes and models before production or use;
designing tools, templates, molds and stamps that involve new technology;
design, construction and testing of selected alternatives to new or improved materials, devices, products, processes, systems or services.

The company has the right to start capitalizing development stage costs only if it demonstrates the implementation all the following criteria:

the technical feasibility of completing the creation of the intangible asset so that it can be used or sold;
the intention to complete the creation of the intangible asset and use or sell it;
the ability to use or sell an intangible asset;
how the intangible asset will generate probable future economic benefits [the entity must demonstrate that there is a market for the products of the intangible asset, or the intangible asset itself, and estimate the future economic benefits from the asset using the principles of IAS 36 Impairment of Assets; if the asset is intended to be used for internal purposes, then it is necessary to prove the usefulness of such an intangible asset for the company];
availability of sufficient technical, financial and other resources to complete the development, use or sale of an intangible asset (an example may be a developed and approved business plan and / or confirmation of external creditors about the readiness to finance the development and use of the created intangible asset);
the ability to reliably estimate the costs attributable to an intangible asset during its development.

costs of materials and services used or consumed in the creation of an intangible asset;
employee benefit costs [as the term is defined in IAS 19] arising from the creation of an intangible asset;
payments required to register a legal right;
amortization of patents and licenses used to create an intangible asset.

IAS 23 establishes the criteria for recognizing interest as part of the cost of an entity-created intangible asset.

However, some costs can not be attributed to the initial cost of the created intangible asset and are subject to recognition in expenses as they arise. These are:

selling, administrative and other general overhead costs, other than those that can be attributed directly to preparing the asset for use;
initial operating losses, as well as losses associated with the internal inefficiency of the process of creating an asset that arose before the planned level of productivity of the specified asset is reached;
the cost of training personnel to work with the created intangible asset.

All costs incurred after the recognition of the created intangible object in accounting and the start of its operation are recognized as expenses as incurred.

Table 3

Stages of creating intangible assets within the company	СAPEX	OPEX	Comments
Research stage		×
Development stage	×		Costs are eligible for capitalization at this stage only after all six criteria are met: technical feasibility of completing intangible assets; intention to use or sell the created intangible assets; the ability to use or sell the created intangible assets; the likelihood of future economic benefits from intangible assets; availability of resources (technical, financial, etc.) to complete intangible assets; the ability to reliably estimate costs.
Operational stage		×

Stages of creating intangible assets within the company

СAPEX

OPEX

Comments

Research stage

Development stage

Costs are eligible for capitalization at this stage only after all six criteria are met:

technical feasibility of completing intangible assets;
intention to use or sell the created intangible assets;
the ability to use or sell the created intangible assets;
the likelihood of future economic benefits from intangible assets;
availability of resources (technical, financial, etc.) to complete intangible assets;
the ability to reliably estimate costs.

Operational stage

Example 4

Computersoft is developing new software for electronic accounting patients in hospitals, which has passed the research stage and is under development. The company is currently awaiting official approval from the regulatory body for the use of this program in hospitals. The company has already received similar permission to use another software, for children's polyclinics. The company does not expect significant problems with obtaining approval from the regulatory body and therefore has already begun the process of mass production.

In accordance with paragraph 57 of IAS (IAS) 38, development stage costs can be capitalized after all criteria are met (see Table 3).

In practice, it is impossible to clearly define the moment when, having fulfilled all the criteria, the company should start capitalizing costs at the development stage. Management is always forced to use professional judgment to make such a decision. Computersoft's management has determined that all of the criteria in paragraph 57 of IAS 38 are met from the moment the application is submitted to the regulator. Such an action is confirmation that the most difficult criterion, namely the completion of the technical creation of an intangible asset, is met. In general, for many companies, filing an application with the regulatory body and / or registering the created intangible asset will be the beginning of cost capitalization.

Currently, every company is faced with the issue of capitalizing costs or recognizing them as expenses of the current period. What is better for the company - CAPEX or OPEX? There is no ready-made correct answer.

Until 2008, many foreign companies gave priority to cost capitalization (CAPEX) in order to improve the net profit of the reporting year. It's no secret that for most top managers, annual bonuses and bonuses directly depended on net profit. After the 2008 crisis, many foreign companies revised their top management and personnel assessment system and developed more sophisticated employee performance assessment indicators to pay annual bonuses and bonuses. At the same time, a trend appeared to reduce the capitalization of costs and increase their recognition in OPEX.

It is important to remember that each company has its own specifics and each disputable case should be considered separately. It is good practice for the company to have written justifications for the capitalization of disputed costs in the form of attachments to accounting policy or internal memoranda. Firstly, such documentation will allow the company to argue its position before the auditors, tax office and other inspection bodies, and secondly, it will serve as a basis for taking into account similar situations in the future, especially when key employees move within the organization or leave.

Capital expenditures or operating expenses (CAPEX or OPEX)? Opportunities for cost capitalization
Capital expenditures, or CAPEX (abbreviated from the English capital expenditure), are the costs of acquiring non-current assets, as well as their modification (completion, additional equipment, reconstruction) and modernization.

The main characteristic of capital costs is the duration of their use. If a company plans to use investments in assets for more than one year, then it is likely that they will be classified as CAPEX. What counts as a capital expenditure for a company depends largely on both the scope of its activities and the rules of its industry. For example, for one company, the capital investment would be the purchase of a new printer, for another, the purchase of a license, and for a third, the capital investment would be the purchase or construction of a new office building. In practice, capital expenditures for a company are most often investments in fixed assets and intangible assets.
Capital expenditures are accounted for under IFRS in accordance with IAS 16 Property, Plant and Equipment, IAS 23 Borrowing Costs, IAS 38 Intangible Assets.
Operating expenses, or OPEX (abbreviated from the English operational expenditure), are the costs of the company that arise in the course of its current activities. Examples of operating costs are the cost of production, commercial, administrative, management expenses, etc. The main task of the company's top managers is tight control, and often reducing operating costs in parallel with increasing the company's income. Thus, the share of operating expenses in relation to the company's revenue is always an indicator of the effectiveness of the company's management.
In accounting, CAPEX leads to the capitalization of costs on the balance sheet of the enterprise, which, in turn, increases the value of assets and the net profit of the enterprise of the reporting period (since the costs incurred in the current period are capitalized and then amortized over several years). However, cost capitalization also has disadvantages. Firstly, the company will pay a large amount. Secondly, the company is required to test its assets for impairment on a regular basis.
The recognition of OPEX in accounting results in a decrease in the current period's net income, but at the same time, the company pays a smaller amount of income tax.
In practice, in about 80% of cases, the company immediately determines what type certain costs belong to. Discussions arise about the remaining 20%. Let's take a look at the most common

fixed assets

If a company acquires an expensive fixed asset that it plans to use for several years, then the question of capitalization of this fixed asset most often does not arise. But if a company purchases a large batch of low-cost objects or spare parts for an existing fixed asset, or incurs costs for inseparable improvements in rented premises, then accounting for these costs is difficult. What to do with them? Capitalize, recognize as inventory or immediately write off to the expenses of the current period?

In order to understand this, it is necessary to return to the definition of property, plant and equipment in accordance with IAS 16 Property, Plant and Equipment.

Fixed assets are tangible assets that:

are intended for use in the process of production or supply of goods and services, for leasing or for administrative purposes;
intended to be used over more than one reporting period.

The standard also clarifies when we should recognize an asset. A property, plant and equipment shall be recognized as an asset only if:

it is probable that the enterprise will receive related to this object future economic
price given object can be reliably estimated.

Thus, when deciding whether an item is a property, plant and equipment for accounting purposes, an entity should keep the following characteristics in mind:

purpose of the object (production, provision of services, leasing, etc.);
the expected period of use of this object;
the likelihood of obtaining future economic benefits from the use of this facility;
opportunity to assess the value of the object.

So, let's look at some of the nuances.

Capitalize or recognize in the expenses of the current period inexpensive homogeneous objects acquired in large volumes?

Very often, companies purchase inexpensive homogeneous objects in large quantities. For example, tools, communication devices, furniture, office equipment, etc.

research stage;
development stage.

Research stage

All costs that an entity incurs during the exploration phase are recognized as an expense when they are incurred.

Examples of activities in the research phase are:

activities aimed at obtaining new knowledge;
search, evaluation and final selection of areas of application of research results or other knowledge;
search for alternative materials, devices, products, processes, systems or services;
formulation, design, evaluation and final selection of possible alternatives to new or improved materials, devices, products, processes, systems or services.

Development stage

At this stage, the company already with a high degree of probability can intangible asset and prove that it is able to bring future economic benefits.

Examples of activities in the development phase might include:

design, construction and testing of prototypes and before production or use;
designing tools, templates, molds and stamps that involve new technology;
design, construction and testing of selected alternatives to new or improved materials, devices, products, processes, systems or services.

The company has the right to start capitalizing development stage costs only if it demonstrates the implementation all the following criteria:

the technical feasibility of completing the creation of the intangible asset so that it can be used or sold;
the intention to complete the creation of the intangible asset and use or sell it;
the ability to use or sell an intangible asset;
how the intangible asset will generate probable future economic benefits [the entity must demonstrate that there is a market for the products of the intangible asset, or the intangible asset itself, and estimate the future economic benefits from the asset using the principles of IAS 36 Impairment of Assets; if the asset is intended to be used for internal purposes, then it is necessary to prove the usefulness of such an intangible asset for the company];
availability of sufficient technical and other resources to complete the development, use or sale of an intangible asset (an example may be a developed and approved business plan and / or confirmation of external readiness to finance the development and use of the created intangible asset);
the ability to reliably estimate the costs attributable to an intangible asset during its development.

costs of materials and services used or consumed in the creation of an intangible asset;
employee benefit costs [as the term is defined in IAS 19] arising from the creation of an intangible asset;
payments required to register a legal right;
amortization of patents and licenses used to create an intangible asset.

IAS 23 establishes the criteria for recognizing interest as part of the cost of an entity-created intangible asset.

However, some costs can not be attributed to the initial cost of the created intangible asset and are subject to recognition in expenses as they arise. These are:

selling, administrative and other general overhead costs, other than those that can be attributed directly to preparing the asset for use;
initial operating losses, as well as losses associated with the internal inefficiency of the process of creating an asset that arose before the planned level of productivity of the specified asset is reached;
the cost of training personnel to work with the created intangible asset.

All costs incurred after the recognition of the created intangible object in accounting and the start of its operation are recognized as expenses as incurred.

Table 3

Stages of creation of intangible assets
inside the company

O international standards financial reporting(IFRS) applicable in the territory of the Russian Federation, we told in ours. When keeping records in accordance with IFRS and when compiling, an accountant needs to know, among other things, the principles of recognition, measurement and disclosure of information in relation to all elements of financial statements. One of important aspects when evaluating the assets of the organization is the issue of capitalization of costs. What is meant by capitalization of costs in IFRS, as well as examples of its application, we will tell in our consultation.

What does "costs are capitalized" mean?

AT normative documents for accounting and preparation of financial statements in accordance with Russian accounting rules, the term “cost capitalization” is not used.

At the same time, a general description of the essence of cost capitalization can be found, for example, in methodological recommendations on accounting costs in agricultural organizations (Order of the Ministry of Agriculture of 06.06.2003 No. 792). It is noted that capitalization of costs means their reflection in balance sheet as assets. This procedure is opposed to the recognition of costs as expenses to receive the corresponding income and the reflection of expenses in the income statement. financial results.

Capitalization of costs in IFRS

AT international practice capitalization of costs is referred to, inter alia, in IAS 2 Inventories. It is noted that some inventories may be allocated to other asset accounts, such as inventories used as a component of internally built property, plant and equipment. In this case, the cost of such inventories allocated to other assets is recognized as an expense over the useful life of the related asset.

Recall that in domestic accounting, the materials used to create fixed assets or intangible assets are also included in their initial cost, i.e. capitalized (paragraphs 7.8 PBU 6/01, paragraphs 6-9 PBU 14/2007).

Reference is made to cost capitalization and, for example, in relation to borrowing costs under the rules of IAS 23 Borrowing Costs. The basic principle here is that borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset are included in the cost of that asset.

Recall that in Russian accounting, in accordance with PBU 15/2008, interest directly related to the acquisition, construction or manufacture of investment asset are included in the cost of that asset.

Thus, despite the fact that in the domestic regulatory framework in accounting, the concept of "capitalization" is not used, the principle of capitalization is widely used in the assessment of assets and their reflection in financial statements.

What is the capitalization of the wage fund. Capitalization of expenses for repairs of fixed assets

fixed assets

Capitalize or recognize in current period expenses inexpensive homogeneous objects purchased in large volumes?

Capitalize or recognize spare parts as a current period expense?

Capitalize or recognize in the current period the cost of inseparable improvements in the leased premises?

Intangible assets

Research stage

Development stage

fixed assets

Capitalize or recognize in the expenses of the current period inexpensive homogeneous objects acquired in large volumes?

Capitalize or recognize spare parts as a current period expense?

Capitalize or recognize in the current period the cost of inseparable improvements in the leased premises?

Intangible assets

Research stage

Development stage

Capital expenditures or operating expenses (CAPEX or OPEX)? Opportunities for cost capitalization

fixed assets

Capitalize or recognize in the expenses of the current period inexpensive homogeneous objects acquired in large volumes?

Example 1

Capitalize or recognize spare parts as a current period expense?

Example 2

Example 3

Intangible assets

Research stage

Development stage

Example 4

fixed assets

Capitalize or recognize in the expenses of the current period inexpensive homogeneous objects acquired in large volumes?

Research stage

Development stage

What does "costs are capitalized" mean?

Capitalization of costs in IFRS

Capitalize or recognize in current period expenses inexpensive
homogeneous objects purchased in large volumes?