Sample Capitalization Policy

Purpose: This accounting policy establishes the minimum cost (capitalization amount)
that shall be used to determine the capital assets to be recorded in [BUSINESS ENTITY]’s books
and financial statements.

Capital asset definition and thresholds: A “capital assetâ€Â is a unit of property with a
useful life exceeding one year and a per-unit allocation cost exceeding [SPECIFY AMOUNT].
Capital assets will be capitalized and depreciated over their useful lives. [BUSINESS ENTITY] will
expense the full acquisition cost of tangible personal property below these thresholds in the
year purchased.

Capitalization method and procedure: All capital assets are recorded at historical cost
as of the date acquired.
Tangible assets costing below the aforementioned threshold amount are recorded as an
expense for [BUSINESS ENTITY]’s annual financial statements (or books). In addition, assets with
an economic useful life of 12 months or less must be expensed for both book and financial
reporting purposes.

Documentation: Invoices substantiating the acquisition cost of each unit of property are
to be retained for a minimum of 10 years.

Tax capitalization threshold: The permissible ceiling for deducting otherwise
capitalizable expenditures are $5,000 when our business has applicable financial statements. The
threshold is limited to $2,500 in the absence of applicable financial statements.