Actually, not amortizing makes them seem more profitable. At the end of the life of the asset, the totals are the same. However, under one model you show a giant loss, initially, and then profits for the next few years. If I expense the $1,000,000 in the year of acquisition, and show a 1,000,000 loss, I then show my revenue as pure profit. Instead, if I have to amortize, I show no loss my first year (because the cost is on the books as an asset), but profit in future years only when my revenue exceeds 200,000 (1/5 the acquisition price). This is how all other assets that earn revenue over multiple accounting periods are handled. Why should Ford have to capitalize a welding robot, but not the software developed to control the welding robot?
Amortizing makes sense for things that have a huge up-front cost and value over time, like - indeed - a robot, or a laptop, or a house. But salaries are not that, they are a continuous cost. I can take a loan on a house (mortgage), and laptops can be bought on 0% payment plans over 3 years. But how would that work for salaries? I'm forced to take out loans to pay the duplicate tax over salaries (and other minor expenses) over the amortization period. That's the insane bit here.
We do that all the time. If I were to build a power generator, it might take several years. During that time, the salaries of people directly building the project are capitalized. Even when the project is put in service and earning revenue, I still migh capitalize the wages for improvements versus repairs. That’s why what you charge on the time sheets matter, if it’s classified as an operational expense vs a capital expense.
Not amortising is only more profitable if you stop developing…
What many companies who amortise development costs do is make some enhancements to some software or build new software so in theory generating a greater asset value but the reality is they’re just kicking the can of accounting for developer costs down the road
Have worked in several businesses that amortised development costs and it always comes back to bite you at some point
It’s what software companies do to make themselves seem profitable than they are