CAPITALISATION OF AN ITEM

This query is : Resolved

Praveen Nigam (Querist)
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01 March 2008 IN CASE OF AN MOVABLE VEHICLE LIKE LOCO IF ITS MOTOR IS CHANGED AND MAJOR PARTS OF ITS BODY IS ALSO REPAIRED. BUT ITS REGISTRATION NO. IS NOT CHANGED. THIS MAY RESULT IN INCREASE IN THE PREVIOUS ESTIMATED LIFE OF THE ASSET. BUT IT DOES NOT RESULT IN CHANGE IN ITS CARRYING CAPACITY. SHOULD SUCH EXPENDITURE BE CAPITALISED OR TREATED AS REVENUE EXPENDITURE?

CA Saurabh Maheshwari

CA Saurabh Maheshwari (Expert)
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01 March 2008 IF IT INCREASES ESTIMATED LIFE THAN SUCH EXPNDITURE SHALL BE ADDED TO WDV AND DEPRICIATION SHALL BE CHARGED ON THE NEW LIFE OF AN ASSET

MANAS ROUT

MANAS ROUT (Expert)
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01 March 2008 SUBSEQUENT EXPENDITURES RELATED TO AN ITEM OF FIXED ASSET SHOULD BE ADDED TO ITS BOOK VALUE ONLY IF THEY INCREASE THE FUTURE BENEFITS FROM THE EXISTING ASSET BEYOND ITS PREVIOUSLY ASSESSED STANDARD OF PERFOMANCES & IN INCREASED IN ESTIMATED LIFE. SO IN YOUR CASE YOU CAN CAPITALISED THE AMOUNT IF IT IS SATISFYING THE ABOVE CONDITIONS.

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CA. GOPAL SONIKA

CA. GOPAL SONIKA (Expert)
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03 March 2008 If any expenditure on the existing assets increase the life of the asset then it should be capitalised.
In ur question, the expediture on its motor may be capitalised, but the repairs of body part should be charged to revenue.