Cost Accounting

Difference between imputed costs and capitalised costs

Imputed Costs: Imputed costs are those costs which do not involve any cash outlay. For example: interest on capital, it not an expense actually paid in monetary term. It is just a book entry. An imputed cost is also known as a hidden cost, implicit cost, or opportunity cost. The formal definition of opportunity cost is this: it is the value of the next best alternative forgone to pursue a particular activity. This is a concept that applies to individuals as well. For example, let’s say you have a choice between two careers: medicine and arts. If you pursue medicine, you’ll make an annual salary of $50,000, but by pursuing arts, your annual salary would be $40,000. Therefore, if you pursue arts, your imputed cost or opportunity cost is $50,000. A firm doesn’t report these costs in its financial statements.

Capitalised Costs: These costs are initially recorded as assets but subsequently treated as expenses. Main examples are the purchase of an intangible asset such as patent or copyright or any other similar intellectual property.

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