Question

explain the meaning of capitalising income

Answer 1

Capitalization of earnings is a procedure of estimating the value of an business group by estimation of the net present value of expected future profits or cash flows.

It is is executed by taking in to account the future income of an organisation and dividing them by the rate of capitalization or rate cap rate.

A capitalization limits the minimum tolerable value above which an organisation capitalizes purchased or constructed the assets.

Below the cap limit, you asset is considered as expense.