Product Development Costs: CapEx or OpEx ?
Nowadays there are very few areas where accounting standards give you a big choice over what accounting treatment you can adopt. The costs of developing a new product (once it has passed its research phase) are one such area. Tech companies have the choice of accounting treatment – expense as operating costs (OpEx) to P&L, or capitalise (CapEx) to balance sheet and amortise over its predicted useful economic life. Factors to consider:
- How bad you are prepared for the P&L to look,
- Balance sheet strength (including credit rating),
- Maintaining distributable reserves,
- Industry norms.
If you are in a dilemma, why not talk it through with us.