Pre-Paid Legal Services (BAV, Monday, Week 2)
business-analysis-and-valuationyear-twoAssets vs. expenses (or, when can I capitalize?)
-- Use the matching principal as a general guide, but also think about the relative size of the asset. If half of your balance sheet is capitalized marketing, people will start asking questions.
-- Can be a challenge for rapidly-growing firms --- lots of growth + aggressive capitalization = tends to overstates profitability
All assets have uncertain future benefits (cash due to inflation, receivables due to bad debt, tangible assets due to uncertainty of future cash flows)
-- Trade-off between relevance and reliability
-- Think about fair value (and possibility of a big impairment), think about timeline for depreciation/amortization
If you're a public company, put everything in the notes to your financial statements. That way, at least you can claim that people could've un-done all of your "managerial judgment"-type accounting decisions.