capitalize


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Capitalize

In accounting, to recognize expenses on long-term liabilities over a long period of time. This allows a company to spread out its expenses so they do not appear to reduce profits at any particular time. For example, a company may have a $1 million profit and a $1 million loan to acquire machinery for its factory. If it does not capitalize the loan, its balance sheet will show no profit for that year. Capitalizing the loan allows the company to recognize the liability over a certain period, usually the usable life of the machinery.

capitalize

To calculate the current value of a future stream of earnings or cash flows. For example, to calculate the current price at which a bond should sell, a financial analyst must capitalize the interest payments and principal repayment that will be made to the investor.

capitalize

(1) In finance:(a) To add an expenditure to the basis of property.(b) To provide funding to an enterprise. (c) To book something as an asset and depreciate it rather than writing off the money spent as an expense.(When one “cooks the books”for a business,extensive repairs might be capitalized as improvements in order to make the enterprise appear more valuable than it is in reality.This approach runs counter to the normal taxpayer desire to treat all repairs as expenses in order to gain maximum tax deductions in the current year.) (2) In appraisal,to estimate the present value of an income stream from a business or property.

Capitalize

To treat the cost of additions and improvements to property as a capital improvement or expenditure.
References in periodicals archive ?
Taxpayers must capitalize the costs of creating, originating, entering into, renewing, or renegotiating five specific types of financial interests: (i) ownership interests in certain entities (e.
This brings us to NAFTA's second overlooked benefit: it accepts and capitalizes on the global economy's evolution.
One outstanding issue for taxpayers is whether a buyer should deduct or capitalize amounts it later pays on a liability in excess of the original amount capitalized.
The IRS requires businesses to capitalize reengineering costs (see TAM 9544001 on reengineering in a conversion to just-in-time manufacturing).
Such guidance will afford taxpayers much greater certainty than the nebulous more than incidental future benefit" test set forth in INDOPCO -- a test that can all-too-easily be misapplied to capitalize routine, on-going, or recurring expenditures.
As most taxpayers probably do not capitalize these internal costs, the regulations will not change the current practice.
The government wanted it to capitalize the entire purchase price.
Commissioner,(6) the Third Circuit, in affirming a Tax Court decision, held that a corporation must capitalize consulting fees, legal fees, and other expenses incurred in deciding whether to accept a friendly takeover bid.
The regulations generally require a taxpayer to capitalize costs incurred in the process of "investigating or otherwise pursuing" one of several types of enumerated transactions.
One of the most difficult questions a company faces is whether it must capitalize an expenditure or whether it can deduct it.
42) Finally, "although taxpayers generally must capitalize the costs of acquiring intangible assets from another person (such as the cost of acquiring a customer list or goodwill), taxpayers generally may deduct the costs incurred to develop or maintain such intangible assets.
Early on, Seydoux foresaw the central role the cellphone - and now the smartphone -- would play in consumers' everyday lives, and began developing the technology and a product roadmap to capitalize on the mobile phone phenomena.