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| Author: | Yee, K.K. |
| Title: | Capitalization of costs and expected earnings growth |
| Journal: | European Accounting Review
2006 : VOL. 15:4, p. 565-583 |
| Index terms: | United Kingdom models earnings accounting theory |
| Freeterms: | accounting procedures capitalization |
| Language: | eng |
| Abstract: | This paper provides a model showing how the capitalization (hereafter as: capzn.) of costs affects contemporaneous earnings (here as: erngs.) and the growth path of expected (here as: exp.) erngs. There are three points made: 1. reported erngs. under successful efforts are more price relevant than erngs. under full costing or full expensing. 2. whether conditional or unconditional, conservatism always enhances the growth rate of exp. erngs. 3. independent of capzn. policy, the long-run exp. erngs. growth rate converges either to the long-run expected free cash flow growth rate or to the depreciation rate. Therefore, while capzn. policy affects the price relevance of erngs. and short-run exp. erngs. growth, it does not affect long-run exp. erngs. growth. |
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