Capital Expenditure/setup costs

#1

We’ve just had a meeting with our accountant to go over the figures for our first six months of trading and while she was happy with what I showed her in Manager she said that our setup costs and outlay on furniture and equipment should be recorded as ‘capital expenditure’ and not be included in the income/expenses section.
I’ve found the ‘fixed assets’ tab which seems to fulfil her requirements in terms of allowing for depreciation and where it sits in the summary etc but I’m still unclear as to where I’d record the setup costs (building work, decorating etc).

Can anyone steer me in the right direction?

Many thanks in advance.

#2

This type of advice should really come from the accountant, as the answer could depend on local laws. That decision really has nothing to do with an accounting application like Manager, which only records transactions.

However, Manager has two tabs for tracking things that will be depreciated or amortized: Fixed Assets and Intangible Assets. Some business startup costs may go into one of these accounts, some may go to expenses. Those that go to Fixed Assets or Intangible Assets will be recovered through periodic depreciation or amortization expenses, with accounts for those appearing when the tabs are enabled.

#3

Thank for the reply. I appreciate what you say and I should have tried to engage her for a while to figure out what she’d prefer but it was a brief meeting and only a passing comment from her and I’d hoped that I’d be able to figure it out myself after the meeting was over.
For now I’ll move the equipment to the Fixed Assets tab and leave the setup costs where they are until we have another meeting with her. It sounds like Intangible Assets would be the right option but I don’t want to go through all the work of moving the transactions over only for that to be wrong so unless anyone UK based can offer a supporting opinion I’ll wait.

#4

You are wise to wait. Intangible assets customarily include such things as good will or intellectual property rights purchased as part of an acquisition. Building renovation expenses would more likely be classified as fixed asset costs, but local law will govern.

#5

You said the payments for this work has been categorized to some expense accounts, right? If so, go to those transactions and change the account so it’s not posted to expense account. It should be posted to Fixed assets account where you then select specific fixed asset the cost relates to.

#6

Thank-you both. So you’d expect construction work and fitting-out costs to be categorised as Fixed Assets too? ie as well as the equipment and furniture?
Where we’ve bought an oven, for example, I would create a fixed asset called ‘oven’ and then edit the transaction so that the account is Fixed Assets>Oven instead of the current ‘Equipment’ but with things like building work or decorating would you suggest I create a new asset for each ‘job’ or create a ‘premises’ asset (or ‘front room’, ‘back room’, ‘exterior’) which would have multiple transactions associated with it, each one increasing its value?

#7

Don’t create fixed asset for each job. When you look at your list of fixed assets, every single asset should represent something tangible you can point a finger at.

It’s perfectly OK to allocate multiple payments against one fixed asset thus ever increasing its book value. Not sure I’d go as far as splitting to “front room”, “bank room” and “exterior”… you can simply create fixed asset called “Property fixtures” and lump up all improvements to property in there.

#8

I want to stress again that you should not be looking to this forum for advice on what to categorize as a fixed asset. Ask your accountant because, as I said previously, local laws differ. For example, some jurisdictions require installation costs to be included in an asset cost. Others might forbid it.

#9

Understood. Thanks for all the help.