What is an Incurred Cost? Free Essay Example

Cost incurred during the development phase must be capitalized. This is because capitalization the cost incurred during the development phase will bring a positive outcome on a company’s balance sheet which would help the company’s value keep increasing by increased the value of asset.

(Cam Merritt, 2018) The value of the asset will be increased when a company consider capitalizing the cost by increase significantly to the value of a current resource or enhance a part of assets that company uses, it is a direct way to increase the value of asset.

However, it can be capitalized. Not only that, when the cost be capitalized, it will provide a long term benefit to the company. For example, a company uses $5 million for acquisitions a manufacturing machine and extra $1.2 million for freight and installation cost. According to the Generally Accepted Accounting Principles (GAAP), the extra cost for freight and installation are allowed including in the asset value during capitalization.

This not only will increase the value of the company’s tangible assets from $5 million to .

2 million also will increase the company’s value as well. (Leanes Lowrie, n.d.). The asset value of the company will growth when costs are capitalized. When the costs are capitalized, company can save company’s fund to lease asset from outsider and protect an intangible asset such like trademarks against contravention.

Therefore, when the company’s value increased by increase the value of asset, it can attract many investors invest to their company. This is because the company show that they had the potential to bring company to archive the next accomplishment by increase company value.

Not only that, if company consider to merger with other company, company able to prove them what asset that company withholding are, and how well of company can keep growing in the future. (Chirag Kulkarni, 2016)

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