Comment by flashgordon
3 years ago
Also with the factory analogy - unreal is the car factory and you are like the worker who built the factory. (Asking out of ignorance) The workers wages are not treated as a capital to be amortized right?
3 years ago
Also with the factory analogy - unreal is the car factory and you are like the worker who built the factory. (Asking out of ignorance) The workers wages are not treated as a capital to be amortized right?
Nifty3929 explains this well, let me just add that good accounting rules try to minimize how much you can tweak by "build" vs "buy". Like building a $1b factory or buying one, if you intend to keep and use it to make cars, should be treated broadly the same way.
If you bought a 10-year license to use Unreal Engine, you'd amortize that out. If you instead built it (to use it!), the same rules should (generally) apply to the expenses you incur. If you build it to sell it...well, that gets complicated, especially as it's tough to estimate the useful life of software, and it's tough to say whether certain costs are improvements or maintenance (which are treated differently), etc.
Doing a sudden switch from salary costs being 100% expensed to 100% amortized (over 5 years for domestic, 15 years for foreign) is really bad, it's legitimately harmful for a ton of small businesses in this space. But honestly having it as 100% expensed is pretty silly. Hopefully this gets fixed with a middle ground and a gradual switchover.
For the factory - yes, your wages as a worker building the factory would be treated as a capital expense to be amortized, at least from the perspective of the factory owner. But in the usual case where the owner is hiring an outside contractor to build the factory, then from the perspective of the contractor, your wages would not be a capital expense.
The company that pays for the factory would basically just pay $1B of capex for a factory. The contractor doesn't get the factory - they get income. And your wages from them are just an operating expense. The contractor is not making a capital investment - they are just doing a job for money.