Operating Expenditure (OpEx)

Funds spent to acquire, upgrade, or maintain physical assets such as property, plant, and equipment. CapEx is capitalised on the balance sheet and depreciated over time, in contrast to operating expenditure which is expensed immediately.

The degree to which a company's operating income changes relative to a change in revenue, determined by the proportion of fixed costs to variable costs. Companies with high intangible asset bases often exhibit strong operating leverage because intangible costs (such as software development and R&D) are largely fixed, enabling profits to scale rapidly with revenue.

The accounting practice of recording an intangible expenditure as an asset on the balance sheet rather than expensing it immediately through the income statement. Under IAS 38, development costs must be capitalised once the six criteria in IAS 38.57 are met, whereas research costs must always be expensed.

Operating profit (revenue minus cost of goods sold and operating expenses) expressed as a percentage of revenue. Operating margin measures how efficiently a company converts revenue into profit from its core business activities before interest and taxes.

A measure of how much capital is required to generate a unit of revenue, calculated as total assets divided by total revenue. Companies with high intangible asset bases may report misleadingly low capital intensity because many intangible investments are expensed rather than capitalised on the balance sheet.

Legal rights that grant the creator of original works exclusive control over their reproduction, distribution, and adaptation. In a business context, copyrights protect software code, written content, marketing materials, training programmes, and creative works as intangible assets.

Run-the-business cost is management-accounting shorthand for expenditure that sustains an organisation's existing capability at its current level: renewals, routine maintenance, support and service costs, replacement of worn-out capacity, and the ordinary running of teams and systems already in place. Its counterpart is growth investment — expenditure intended to create a capability the business does not yet have, or to extend one materially beyond its current standard.

A budgeting method in which all expenditures must be justified from scratch each period, rather than being based on prior-period budgets with incremental adjustments. ZBB forces rigorous scrutiny of intangible investment decisions — including R&D, marketing, and training — and can improve capital allocation discipline when applied alongside productivity measurement.

AI and IAS 38: When Can You Capitalise AI Development Costs?

IAS 38 sets six criteria for capitalising development costs, but applying them to AI projects is fraught with ambiguity. This article maps each criterion to AI development realities and provides practical guidance for CFOs and accountants navigating the recognition question.

What are the ASC 350 rules for software capitalisation?

ASC 350-40 requires capitalisation of internal-use software development costs during the application development stage, while preliminary project and post-implementation costs must be expensed.

How are useful lives determined for intangible assets after an acquisition?

Useful lives are determined by analysing contractual terms, legal protections, historical attrition patterns, technology obsolescence rates, and economic factors specific to each intangible asset class.

What is the useful life of an AI model for amortisation purposes?

AI models typically have useful lives of 2-5 years for amortisation, reflecting rapid technological advancement, though the underlying training data and architecture may retain value longer.