Some line managers might be allowed to spend on OpEx, but not on CapEx. Buying a perpeptual one time license smells like a CapEx expenditure; where the SaaS model is more clearly an operating expenditure with the gleam of being easy to cut.
Some line managers might be allowed to spend on OpEx, but not on CapEx. Buying a perpeptual one time license smells like a CapEx expenditure; where the SaaS model is more clearly an operating expenditure with the gleam of being easy to cut.
CapEx purchase are usually justified by meeting a certain financial threshold. From what I can tell, SaaS is more being pushed with software that costs hundreds of dollars, not thousands of dollars (as in the difference between OpEx and CapEx). Expensive software is justified by creating a CapEx for the initial purchase, and then annual support/maintenance contracts usually fall under an OpEx. And corporations have tax advantages with CapEx, so I'm not really sure why any company would not want to embrac
From what I can tell, SaaS is more being pushed with software that costs hundreds of dollars, not thousands of dollars (as in the difference between OpEx and CapEx).
Accountant here. Under IFRS all leases are capitalized including software leases [centralts.com]. The fact that an individual seat of the software has a modest cost is irrelevant when you are purchasing hundreds of seats. GAAP is requiring similar measures and the accounting rules makers are aware of the complications that software subscriptions create on the financial statements.
And corporations have tax advantages with CapEx, so I'm not really sure why any company would not want to embrace it when justified.
Usually companies would rather expense things rather than capitalize them whenever possible. If you capitalize a purchase (equipment or lease) you have to depreciate it over time. While there are exceptions pretty much every company would usually prefer to simply expense the purchases and take the write off immediately. The nominal purpose of capitalizing purchases is to match the use of the expensive thing with it's actual use in the business. For example if I buy a car, I don't put 100,000 miles on it in the first week I own it. It takes years for it to realize the full operational value as I drive it. Same with capital purchases in a business. Even though the equipment might be actually paid for the moment you buy it you have to pretend you don't hand over the cash for it.
My company just bought a $30K piece of equipment which we have to capitalize. So I have to pretend we didn't actually hand over a $30K check and depreciate it over the next several years until we pretend the asset has no residual value even though we'll be using it 10 years from now long after we aren't depreciating it any more. Would make more sense and be more advantageous to us to simply expense it and take the tax writeoff today.
My company just bought a $30K piece of equipment which we have to capitalize. So I have to pretend we didn't actually hand over a $30K check and depreciate it over the next several years until we pretend the asset has no residual value even though we'll be using it 10 years from now long after we aren't depreciating it any more. Would make more sense and be more advantageous to us to simply expense it and take the tax writeoff today.
First off, thank you for the clarity. Regarding this last comment, while it makes sense from an out-of-pocket cost to expense everything and take the immediate tax writeoff, it's a bit inaccurate to financially state that equipment you're going to run for a decade only holds value for one year. From what I understand, depreciation schedules are somewhat tied to the expected life of the asset. Sure, you could run that hardware for 10 years and you're only going to be able to depreciate those costs for a f
Regarding this last comment, while it makes sense from an out-of-pocket cost to expense everything and take the immediate tax writeoff, it's a bit inaccurate to financially state that equipment you're going to run for a decade only holds value for one year.
That's my point. Let's use a simple example. I buy a machine for my business for $10K and it depreciates straight line for 5 years ($2K/year). So I spend cash money in the amount of $10K right up front and then I have an asset that according to my books is fully used up and without value at year 5. My cash is gone immediately but I don't get to realize the full tax value of that for another 5 years whether or not it actually makes me money. Furthermore chances are that the machine is still going to be
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Might be a CapEx vs OpEx question (Score:0)
Some line managers might be allowed to spend on OpEx, but not on CapEx. Buying a perpeptual one time license smells like a CapEx expenditure; where the SaaS model is more clearly an operating expenditure with the gleam of being easy to cut.
Re: (Score:2)
Some line managers might be allowed to spend on OpEx, but not on CapEx. Buying a perpeptual one time license smells like a CapEx expenditure; where the SaaS model is more clearly an operating expenditure with the gleam of being easy to cut.
CapEx purchase are usually justified by meeting a certain financial threshold. From what I can tell, SaaS is more being pushed with software that costs hundreds of dollars, not thousands of dollars (as in the difference between OpEx and CapEx). Expensive software is justified by creating a CapEx for the initial purchase, and then annual support/maintenance contracts usually fall under an OpEx. And corporations have tax advantages with CapEx, so I'm not really sure why any company would not want to embrac
Capitalizing assets (Score:3)
From what I can tell, SaaS is more being pushed with software that costs hundreds of dollars, not thousands of dollars (as in the difference between OpEx and CapEx).
Accountant here. Under IFRS all leases are capitalized including software leases [centralts.com]. The fact that an individual seat of the software has a modest cost is irrelevant when you are purchasing hundreds of seats. GAAP is requiring similar measures and the accounting rules makers are aware of the complications that software subscriptions create on the financial statements.
And corporations have tax advantages with CapEx, so I'm not really sure why any company would not want to embrace it when justified.
Usually companies would rather expense things rather than capitalize them whenever possible. If you capitalize a purchase (equipment or lease) you have to depreciate it over time. While there are exceptions pretty much every company would usually prefer to simply expense the purchases and take the write off immediately. The nominal purpose of capitalizing purchases is to match the use of the expensive thing with it's actual use in the business. For example if I buy a car, I don't put 100,000 miles on it in the first week I own it. It takes years for it to realize the full operational value as I drive it. Same with capital purchases in a business. Even though the equipment might be actually paid for the moment you buy it you have to pretend you don't hand over the cash for it.
My company just bought a $30K piece of equipment which we have to capitalize. So I have to pretend we didn't actually hand over a $30K check and depreciate it over the next several years until we pretend the asset has no residual value even though we'll be using it 10 years from now long after we aren't depreciating it any more. Would make more sense and be more advantageous to us to simply expense it and take the tax writeoff today.
Re: (Score:2)
My company just bought a $30K piece of equipment which we have to capitalize. So I have to pretend we didn't actually hand over a $30K check and depreciate it over the next several years until we pretend the asset has no residual value even though we'll be using it 10 years from now long after we aren't depreciating it any more. Would make more sense and be more advantageous to us to simply expense it and take the tax writeoff today.
First off, thank you for the clarity. Regarding this last comment, while it makes sense from an out-of-pocket cost to expense everything and take the immediate tax writeoff, it's a bit inaccurate to financially state that equipment you're going to run for a decade only holds value for one year. From what I understand, depreciation schedules are somewhat tied to the expected life of the asset. Sure, you could run that hardware for 10 years and you're only going to be able to depreciate those costs for a f
Depreciation (Score:3)
Regarding this last comment, while it makes sense from an out-of-pocket cost to expense everything and take the immediate tax writeoff, it's a bit inaccurate to financially state that equipment you're going to run for a decade only holds value for one year.
That's my point. Let's use a simple example. I buy a machine for my business for $10K and it depreciates straight line for 5 years ($2K/year). So I spend cash money in the amount of $10K right up front and then I have an asset that according to my books is fully used up and without value at year 5. My cash is gone immediately but I don't get to realize the full tax value of that for another 5 years whether or not it actually makes me money. Furthermore chances are that the machine is still going to be