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Can project management costs be capitalized?

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I'm currently involved in a very large project where the project costs are really high, about $15,000,000. The project is for developing an in-house state of the art accounting system that will be used internally by my organization.

$15,000,000 is a lot of money, even to my organization (which is a public company), and I'm wondering whether it's legal and practical to capitalize the project management costs so that we can a strong balance sheet.

I realize that part of my question has to do with finance and accounting, but I couldn't find a better place to ask it.
asked 4 years ago by anonymous

1 Answer

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This is an excellent questions (+1) and you might have more than one opinion on the subject.

First, let me state a fact, capitalizing project costs is done only to inflate profits, reduce expenses, and increase assets - in other words, make the company look better on the balance sheet than it actually is. Let's face it, capitalizing project costs is never done with the best of intentions, but on the other hand, everyone does it.

So, the answer to your questions is "Yes, you can capitalize project costs". But, the question is, do you consider an in-house accounting system as an asset? Can you really say that the whole $15,000,000 is capex? If you can consider it an asset, then you should place it as an asset, and when it comes to depreciation, you should discuss with your stakeholders how many years do you think the accounting system will serve you (10 years? 20 years? etc...)

By the way, if your company is considering a merger or a buyout, then don't think, for a split second that the auditor from the other company won't notice these services masquerading as assets - whether he'll approve of it or not is another story.
answered 4 years ago by MaplePM (46,940 points)

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