At some point your nonprofit will likely go through the process of building a new building or remodeling or adding on to an existing facility. During this process, you may question which costs to capitalize and which costs to expense. Below are general guidelines to follow when deciding.

As you acquire an asset and prepare it to be used for its intended purpose, you will incur charges. These costs would be capitalized and include the charges for improving an asset’s condition or relocating it, preparing plans, and obtaining the appropriate permits. It is common for contractors to detail the phases of the construction process and the cost for each phase. The detail of these phases can assist in determining if the costs should be capitalized or expensed.

Interest costs may also be capitalized. You may incur interest costs if it takes some time to get the asset in shape for its intended use. These interest costs will also be included in the historical cost of acquiring that asset.

The capitalization policy should be reviewed often to ensure your nonprofit is following it. If your organization does not have an asset capitalization policy, now is a good time to adopt one.
If you have any questions about capitalization or would like a sample capitalization policy, please contact your Hawkins Ash CPAs representative.

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Briana Peters
I joined Hawkins Ash CPAs in 2013 and am currently an audit manager in the firm’s Green Bay office. As an in-charge accountant, I focus on nonprofit organizations. I am involved in all parts of the audit process including financial statement preparation. I also perform audits for employee benefit plans and reviews and compilations of nonprofits and small businesses. I am a member of the firm’s nonprofit service group as well as the employee benefit plan service group.

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