INSTRUCTIONS!!!!!:
An organization is planning to upgrade the desktop systems for all of its administrative assistants. Currently, the assistants have different operating systems and software versions making sharing information difficult. The new systems will include Office 365 to allow for consistent software and easy updates. There are currently 28 assistants and the project will include two backup systems for future failures. The total cost for the project is expected to be $57,870 for an all-in-one desktop, (30 * $1,929), MS 365 Business Premium ($20 per user per month), and $11,070 for personal color laser printers (30 * $369). What part, if any, of this equipment and software can be capitalized? Should it be capitalized? Explain why or why not.
Sample Post BELOW
This is an interesting scenario and one that often plays out at my employer. I do not have visibility into the pc realm, but do have to make some decisions regarding servers and other infrastructure. Given the scenario, the first thing that comes to mind are the printers. I am shocked that they want personal devices for every desk. Also, they are ordering two spares or “backups” to match the number of PC’s. I believe this is an error, and that they should purchase two larger network color laser printers. It will cost less, and the maintenance and toner costs will be reduced as well. Please note, that the toner and any maintenance would be considered expense, not capital, so lowering expenses would mean reducing the number toner cartridges. If there are areas that need personal printers, a few can be ordered. Those should only be needed for printing checks or other private matters. With two network printers, they serve as each other’s backup. Whatever printer layout they choose, they will be using this as part of the capital budget process. The benefit is that the computers and printers would be consider office equipment or “Computers and peripheral equipment”, for which the IRS allows deductions for up to 5 years (Publication 946, 2023).
The PC’s would be a capital purchase as well and the company can take the depreciation for 5 years as noted above. The benefit to doing so is to use the deductions to show better profitability for the organization. For my employer, capital investments are assets, and the more assets or investments we have, the better the organization looks as far as profitability. The Microsoft subscription is expense. It cannot be capitalized nor qualify for a deduction. It is essentially a software lease, nothing is purchased. If they want to capitalize it, they need to buy the software licenses which would show ownership, then have a separate maintenance agreement for updates. The maintenance agreement would be expense, and the software purchase could be capitalized. In most cases, Microsoft does not do that, they sell it as a subscription which is purely expense.
