Last financial year, we recorded costs as an expense for the creation of some Assets. These should have been recorded as capital costs as opposed to revenue. My understanding is that, we can: Cr Retained Earnings & Dr Asset - for Tangible Assets I have been advised that this is not allowed for Intangible Assets. The person giving the advise did not explain why, I cannot contact them and I am not certain they are correct. Can someone explain: If both treatments above are correct? Why? Reference the explanations in the relevant accounting standards?
Correcting Prior Year Capital Revenue Errors
Answers
If your company issues any audited annual report then you really need to start this conversation with your auditors. They can tell you what is involved because such a change is no walk in the park. Typically the item needing to be adjusted must be very, very large in amount meaning it was "material to the financial statements" in the parlance of your auditors.
Else if there was no audited annual report then you have to determine who received any prior year financial info. This can be banks, who get info on your earnings if you have a loan, shareholders, income tax authorities, etc - all of whom need to be informed of your change. Again, no walk in the park. So consider all this before proceeding.
I agree with everything Maple A said. To add to that, you have an outstanding issue of an asset that has been expensed, and which is not on the balance sheet where it belongs. Check with your CPA, but if it were me, if the subject asset value were above your normal capitalization policy threshold amount, I would Credit retained earnings and debit fixed assets to get the balance sheet right. And, as Maple states, technically you have an obligation to notify stakeholders (banks, shareholders, etc) of the change since the prior period financials you sent them were incorrect.
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Accounting