Capitalisation of Intangibles

Intangible assets that are not captured on a company's balance sheet or in traditional accounting frameworks, including internally generated brands, proprietary data, organisational culture, and employee expertise. These often represent the largest source of hidden value in modern businesses.

The rate used to convert a single-period earnings or cash flow figure into an indication of value, calculated as the discount rate minus the expected long-term sustainable growth rate. The capitalisation rate is the reciprocal of the capitalisation multiple and is used in the capitalisation of earnings method for businesses with stable, predictable income streams.

The ongoing costs of running a business, including salaries, rent, utilities, marketing, and professional services. Unlike capital expenditure, OpEx is expensed immediately on the income statement.

The systematic allocation of a tangible asset's cost over its useful life. Depreciation reduces the book value of physical assets such as machinery, vehicles, and buildings on the balance sheet while recording the expense on the income statement.

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 International Accounting Standard governing the recognition, measurement, and disclosure of intangible assets. IAS 38 requires that an intangible asset be identifiable, controlled by the entity, and expected to generate future economic benefits.

Systematic investigation and experimentation aimed at creating new products, services, or processes, or significantly improving existing ones. R&D expenditure is one of the largest categories of intangible asset investment and is a key driver of innovation capital and future competitiveness.

The higher of an asset's (or cash generating unit's) fair value less costs of disposal and its value in use. Under IAS 36, an impairment loss is recognised when the carrying amount of an asset exceeds its recoverable amount.

How should companies capitalise AI investments under IAS 38?

Under IAS 38, AI development costs can be capitalised once technical feasibility, intent to complete, probable future benefits, and reliable cost measurement are demonstrated — research phase costs must be expensed.

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.