Which statement is true about a company's choice of capitalization policy?
A) All assets with a useful life of more than one year must be capitalized.
B) The company's policy must meet the minimum capitalization amounts established by GAAP.
C) The company's policy is determined relative to materiality and the cost of maintaining asset records.
D) The company may elect to capitalize operating expenses which exceed the minimum threshold for asset capitalization.

Question

Quizplus · Accepted Answer

The company's choice of capitalization policy is typically determined by considering the materiality and cost of maintaining asset records. This means that the company should only capitalize assets that are significant enough to be recorded and maintained in the accounting records, and that the cost of maintaining those records does not outweigh the benefits of capitalization. GAAP does establish minimum capitalization amounts, but this is not the only factor that companies consider when choosing their capitalization policy. Additionally, operating expenses are not typically capitalized, as they are not considered assets with a useful life of more than one year.

Which Statement Is True About a Company's Choice of Capitalization