Q: How do you handle high dollar purchases of equipment for an industrial program? For example, we recently spent approximately $80K for some CNC machining equipment. Does this expense need to be absorbed by the department, or division, in one year? I’ve read the article on development costs and how they should be approximately 10% of income, or better yet, 10% of margin our a three year period, but our books close every year and I’m not aware of an accounting mechanism to allow that equipment expense to be carried over a period of years.
A: 1.It is normally the practice to split the cost out over a 2-5 year period. It depends on how long the equipment will last for.
2.You can apply the cost to the Department or you can apply the cost to the Division. If applying to the Division it would be because you have a Capital Expense Budget.