What is Capitalisation?

Capitalisation, also known as CapEx (Capital Expenditure), is an accounting practice that allows organisations to spread the cost of investments over time rather than recording them as immediate expenses. This ensures that major expenditures—such as software, infrastructure, or development costs—are allocated appropriately across multiple financial periods, rather than negatively impacting a single period’s profitability.

By capitalising costs, businesses can more accurately represent their financial performance, maintain stability in reported profits, and ensure compliance with corporate governance and accounting standards.

Why Capitalisation Matters

1. Financial Accuracy & Profit Optimisation

   • Capitalisation ensures that investment costs are allocated over the period in which they provide value, rather than being recorded as a single large expense. For example, if a company invests in new software development, rather than expensing the entire cost upfront, it spreads the cost over the expected useful life of the software. This approach prevents financial statements from showing sudden losses due to major investments and ensures a more accurate representation of long-term profitability.

2. Cash Flow & Budgeting

   • Spreading costs over multiple financial periods helps businesses manage cash flow more effectively. Instead of absorbing large one-time expenses, capitalisation allows organisations to distribute costs in a way that aligns with revenue generation, improving financial planning and investment decision-making.

3. Strategic Investment & Asset Valuation

   • Capitalisation allows companies to invest in long-term growth initiatives without immediately impacting profit margins. It ensures that investments in technology, infrastructure, or new capabilities are reflected as assets rather than short-term expenses, thereby improving the overall valuation of the company.

4. Separation of CapEx vs. OpEx

   • Capital Expenditure (CapEx) represents investments in assets that provide future value, while Operational Expenditure (OpEx) covers ongoing business expenses like salaries, rent, and utilities. A clear distinction between CapEx and OpEx helps in accurate financial reporting and tax planning.

Capitalisation in Fluid

To effectively manage capitalisation, organisations need a structured approach to identifying which costs qualify as capital expenditure and ensuring accurate financial reporting. Fluid provides a comprehensive framework for capitalisation by distinguishing between resource costs (related to personnel effort) and non-resource costs (external expenses such as equipment or consulting fees).

By applying predefined methodologies, project phases, and financial policies, Fluid ensures capitalisation is calculated correctly and aligns with corporate accounting standards. The next section highlights the key elements for configuring capitalisation settings, with further details available in the linked articles.

Understanding Capitalisation Settings

Non-Resource Cost Capitalisation

Non-resource costs refer to external expenses such as equipment purchases, software licences, and consultant fees. To ensure accurate capitalisation of non-resource costs in Fluid, the following parameters must be configured:

• Expense Types Configuration – Expense types must be marked as capitalisable, with a capitalisation percentage greater than 0%.

• Project Capitalisation Eligibility – The project must be set as eligible for capitalisation.

• Financial Period Alignment –

  • Non-resource forecasts must fall within open financial periods to be eligible for capitalisation.

  • Non-resource actuals must be recorded in a closed financial period and have a date before the project’s implementation date.

For detailed configuration steps, please refer to the relevant article.

Resource Cost Capitalisation

Resource costs refer to personnel effort and are capitalised based on time allocated and booked to projects. To ensure accurate capitalisation of resource costs, the following key settings must be configured:

• Methodology, Project Phase & Tasks – Capitalisation rules are driven by the project’s methodology and current phase. Only tasks that are marked as capitalisable within the methodology setup can be considered for capitalisation. Project tasks serve as the basis for time entries in timesheets, and only time logged against capitalisable tasks will contribute to capitalisation calculations.

• Capitalisation Profile – Defines the capitalisation percentage for different resource roles within specific project phases. This applies to resource forecast capitalisation.

• Rate Card & Expense Type Configuration – Resources must be assigned a capitalisable rate card to ensure correct cost allocations. The expense type associated with the rate card must also be set as capitalisable.

• Project Capitalisation Eligibility – The project must be configured as eligible for capitalisation.

• Resource Forecast Eligibility – For a resource forecast to be capitalised, the project allocation must be in open months and the resource role must be marked as capitalisable.

• Timesheet Actual Eligibility – Capitalisation only applies to time booked against capitalisable tasks and roles within an eligible financial period.

For detailed configuration steps, please refer to this article.