Two companies spend 100 on development this year. Same cash out, same product.
Company A expenses it. The full 100 hits operating costs.
Company B meets the IAS 38 criteria and capitalizes it. The 100 goes on the balance sheet and reaches the P&L as amortization over the following years.
Development costs, IAS 38
Same spend, a different year one
Company A, expensed
Company B, capitalized
Other operating costs
Other operating costs
Development100
EBITDAlower
EBITDAhigher
Amortizationpart
the same 100 of cash, spent in the same year
doubleentry.lifeIllustrative
Illustrative. Amortization depends on the useful life of the asset.
Cash is identical. Year one EBITDA differs by the full 100, and operating profit by most of it.
Before comparing margins across companies, look at where the development costs went.