Level: Advanced
TCM Section(s)
3.2. Asset Planning
Venue: 2024 AACE International Conference & Expo
Abstract: Capital projects, which make up the major part of the long-term assets on a balance sheet, can be so large for many corporations. Hence, it is essential to decide, how the list of equipment units and facilities ends up on the balance sheet that is called capitalization – also called recognition of assets. Some of the assets will be expensed in the operating statement.
So, it is essential to understand how oil and gas operating companies recognize the capital assets, which supply economic benefits over a future period frame. Capital assets are tangible and intangible assets that meet the company minimum capitalization threshold.
The paper illustrates the transformation of capital asset’s cost from the balance sheet over to the income statement. Since capital assets are long-lived assets, a portion of the cost over a period will be on income statements as depreciation and amortization expenses.
The paper will illustrate how and why it is desirable for a cost engineer or project accountant to understand the distinction between capitalizing expenditures and expensing. The choice of whether to expense or capitalize expenditures related to long-lived assets is a complex decision that depends on various factors, which will be illustrated with impacts on the financial statements including balance sheet, income statement and cash flow.
TCM Section(s)
3.2. Asset Planning
Venue: 2024 AACE International Conference & Expo
Abstract: Capital projects, which make up the major part of the long-term assets on a balance sheet, can be so large for many corporations. Hence, it is essential to decide, how the list of equipment units and facilities ends up on the balance sheet that is called capitalization – also called recognition of assets. Some of the assets will be expensed in the operating statement.
So, it is essential to understand how oil and gas operating companies recognize the capital assets, which supply economic benefits over a future period frame. Capital assets are tangible and intangible assets that meet the company minimum capitalization threshold.
The paper illustrates the transformation of capital asset’s cost from the balance sheet over to the income statement. Since capital assets are long-lived assets, a portion of the cost over a period will be on income statements as depreciation and amortization expenses.
The paper will illustrate how and why it is desirable for a cost engineer or project accountant to understand the distinction between capitalizing expenditures and expensing. The choice of whether to expense or capitalize expenditures related to long-lived assets is a complex decision that depends on various factors, which will be illustrated with impacts on the financial statements including balance sheet, income statement and cash flow.