Financial Accounting: In an Economic Context

ORGANIZATIONAL COSTS

Organizational costs represent another subjective area in accounting for intangible assets. These costs are incurred prior to the start of a company's operations, typically including fees for underwriting, legal and accounting services, licenses, titles, and promotional expenditures. It is relatively clear that such costs are incurred to generate future revenues, and therefore, it seems that organizational costs should be capitalized. However, the service potential of such an asset cannot be associated with any future revenue in particular, and thus it is difficult to determine how it should be amortized. In a sense, organizational costs are of value to the company throughout its entire life. Does that mean that they should be left on the balance sheet indefinitely? Conceptually it may, but, similar to research and development costs discussed below, professional standards require that they be expensed.