Volume 7, No. 6

 

Adios To Start-Up Costs:  With few exceptions, generally accepted accounting principles have never specified how companies should handle costs incurred in order to open a new facility, begin a new process in an existing facility, or start selling products or services in a new territory - all those things that fall into the messy category of "start-up costs". Companies were fairly free to either expense such costs, or to amortize them over future periods. That's about to change. In early April, the Accounting Standards Executive Committee of the American Institute of CPAs released its Statement of Position 98-5, "Reporting on the Costs of Start-up Activities" - and it will require that all companies treat such costs in a consistent fashion. Except for mutual funds, which have a different transition process, all companies will be required to expense such costs beginning in 1999. This change in accounting will be certain to affect some industries more than others, as the capitalization of start-up costs is much more prevalent in certain industries. For example, two groups that have harbored many "capitalizers" are retailers and restaurants. Furthermore, the new treatment may increase earnings volatility of rapidly growing firms that had capitalized these costs and now must expense them.

Comments are closed.

Powered by WordPress. Designed by WooThemes