Final answer:
Costs incurred subsequent to the acquisition of an asset are capitalized if they provide future benefits. This allows them to be depreciated or amortized over time, matching the costs with the revenue or benefits they generate.
Step-by-step explanation:
Costs incurred subsequent to the acquisition of an asset are capitalized if they provide future benefits. This means that instead of immediately expensing these costs, they are added to the value of the asset on the balance sheet and are depreciated or amortized over time.
For example, if a company acquires a building and then incurs costs to renovate and improve it, these costs can be capitalized because they enhance the future benefits of owning the building. The costs would be added to the initial cost of the building and depreciated over their estimated useful life.
This accounting treatment ensures that the costs are matched with the revenue or benefits they help generate over time, providing a more accurate representation of the company's financial position.