19 August 2013
a manufacturing company has purchased cutters for its machine.cutters use to be attached in machine to cut the iron they are around of Rs. 1 lac each (8 or 9 nos).but the useful life of cutters are not ascertainable it can be one day or can be 10 years.so what should be accounting treatment for Purchase of cutters it should be capitalize or not.
19 August 2013
such cutters are not useful unless fitted in such machine and cannot be used independently so its part of machine only without which machine is not useful.
Considering this fact i think it should be capitalise.
19 August 2013
In present case machinery is already existed at the date of purchasing of cutter & No further increase in life/expediency of Machinery.
Further life of cutter is also not certain for eligible of Separate capitalization, it may for one day or ten years & if this cutter again breakdown during the operation, machine will requires again same cutter
Therefore In view of above Cutter should be treated as revenue items instead of Capitalization.
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