Capitalization of Assets

• capitalization = putting on the asset side of balance sheet
• either through
  • purchase
  • self-made

when purchase

cash payment

• • cash
• • asset (inventory, PPE, Buildings, whatever asset class)
• P/L nothing (cancels out)
• Operating CF → only if inventory is purchased
• Investment CF → if e.g. machine is purchased

trade payable / liability

• • liability
• • asset (inventory, PPE, Buildings, whatever asset class)
• P/L nothing (cancels out)
• any CF nothing (only after later on when payable is payed)

when self-made

inventory

• step 1: Production is happening
  • • P/L (salary and material expense)
  • • cash (salary, material)
• step 2: Production is done, capitaliztion
  • • P/L (addition of inventory)
  • • inventory
• result:
  • P/L nothing (cancels out)
    • Cost Of Goods Sold did not change (we did not sell anything)
  • • cash
  • • inventory
  • • Operating CF (as if bought)

investment (e.g. building)

• step 1: Production is happening
  • • P/L (salary and material expense)
  • • cash (salary, material)
• step 2: Production is done, capitaliztion
  • • P/L (addition of assets, capitalization income)
  • • asset class (PPE, Buildings, whatever)
• result:
  • P/L nothing (cancels out)
    • Cost Of Goods Sold did not change (we did not sell anything)
  • • cash
  • • assets
  • • Investing CF
  • Operating CF nothing