[Happen4reason]

Can you capitalize costs to get your product to a saleable state and wait to expense until goods are sold in a later period? The costs create a future economic value for the product. The costs are happening a year in advance of the sale of goods. I was thinking that pre-production costs could be capitalized. Does anyone know what authoritative literature reference this may relate to?

[UCMCPA]

Pre-production? Are you talking about increasing the basis of the assets that will be doing the producing?

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[UCMCPA]

Pre-production? Are you talking about increasing the basis of the assets that will be doing the producing?

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[mla1169]

How about an example of a cost you will incur that you are trying to capitalize? I don't want to give you bad information because I misinterpreted the question.

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[mla1169]

How about an example of a cost you will incur that you are trying to capitalize? I don't want to give you bad information because I misinterpreted the question.

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[Happen4reason]

@mta1169 For example the label of the product, or tube it is packaged in. The product is being completely renovated so all associated costs of getting the product to a salable condition will be new. The product will be sold the following year, but these new costs are current.

@UCMCPA – I am not sure what you mean exactly. The value of the asset will increase as a result of these new costs.

[Happen4reason]

@mta1169 For example the label of the product, or tube it is packaged in. The product is being completely renovated so all associated costs of getting the product to a salable condition will be new. The product will be sold the following year, but these new costs are current.

@UCMCPA – I am not sure what you mean exactly. The value of the asset will increase as a result of these new costs.

[mla1169]

GAAP accrual accounting is that expenses follows revenues. So if you paid a designer to design your labels, THAT expense could be capitalized as a development cost (in some but not all cases).

if you're talking about the labels and tubes as you mentioned, those become part of inventory which is an asset on the balance sheet. When you actually put the labels on the tubes they become part of work in progress which is a balance sheet asset. They shouldn't be expensed until the sale happens.

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[mla1169]

GAAP accrual accounting is that expenses follows revenues. So if you paid a designer to design your labels, THAT expense could be capitalized as a development cost (in some but not all cases).

if you're talking about the labels and tubes as you mentioned, those become part of inventory which is an asset on the balance sheet. When you actually put the labels on the tubes they become part of work in progress which is a balance sheet asset. They shouldn't be expensed until the sale happens.

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[Happen4reason]

Okay thank you – So you think that the costs should just be included within inventory. That the costs shouldn't be capitalized and later amortized as the product is sold?

[Happen4reason]

Okay thank you – So you think that the costs should just be included within inventory. That the costs shouldn't be capitalized and later amortized as the product is sold?

[mla1169]

Its just semantics. By putting the cost into inventory then transferring to cost of goods sold as the product is sold you are effectively doing the same thing as capitalizing then amortizing.

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[mla1169]

Its just semantics. By putting the cost into inventory then transferring to cost of goods sold as the product is sold you are effectively doing the same thing as capitalizing then amortizing.

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[Happen4reason]

Where can I find authoritative literature referencing this?

[Happen4reason]

Where can I find authoritative literature referencing this?

[mla1169]

It's covered in any intermediate accounting literature. Its part of any cost accounting textbook. I'm not sure what you consider “authoritative literature” but here are a few places you can find exactly what I explained above

https://www.learnmanagerialaccounting.com/FreeMaterial/productperiod/index.html

https://www.retailpackaging.com/blog/2009/06/book-keeping-and-packaging/

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[Author]

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