Capitalisation
What is capitalisation?
Expenditure incurred in acquiring or producing an asset must be recognised as business assets in the balance sheet. The term ‘capitalisation’ describes the inclusion of an asset’s value on the assets side of the balance sheet. This means that expenditure on the acquisition of an asset is not immediately deductible as a business expense, as it remains part of the business. Depreciable assets are only subsequently written off as part of the depreciation allowance (AfA). Consequently, expenditure on the acquisition of assets does not immediately reduce tax liability as business expenses, but only subsequently through the depreciation allowance (AfA).
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