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Major Expenditures Capitalized or Expensed We have prepared a memorandum as a guideline for our clients regarding capitalization of expenditures. Although the American Institute of Certified Public Accountants and the Internal Revenue Service address the general aspects of capitalization the question still remains a judgment of the Board based on the requirements and needs of the Club. To second guess an examining Internal Revenue Service agent’s decision on the amount to capitalize is something for which we are not qualified. Instead, we suggest that the Board follow sound and reasonable accounting methods based on the memo and document in the Board’s minutes, each major expenditure as either a capital item or as an expense charged to operations. In this manner, the treatment of the major expenditure would be considered the same for accounting and tax purposes to provide a positive approach if examined by an Internal Revenue Service Agent. The accounting policy adopted by your organization regarding whether expenditures should be capitalized or expensed must consider both generally accepted accounting principles and the Internal Revenue Code. The general policy normally followed by most organizations can be stated as – Does the cost add to the unit for more than one period or does the expenditure benefit only the current or prior period? Since not all situations are clear cut and easily defined, the Board using certain guidelines, should review each major expenditure and based on the facts and circumstances determine its disposition. The following excerpts from various authoritative sources should provide a reference from which a reasonable decision can be made by the Board. |
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