Capitalization of Expenses

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Querist : Anonymous

Querist : Anonymous (Querist)

23 March 2010 As per accounting Standard which expenses is to be capitalized or charged off to profit & loss account? Whether it is depend on capacity of that machine, or on that changed part or Life of machine or life of that part.

CA Ashok Kumar Sahu

CA Ashok Kumar Sahu (Expert)
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23 March 2010 As per AS, if benefit of expenses arise more then 1year then expenses are to capitalized or because of that expenses use or life of fixed assets increase then also expenses are capitalized.

shakuntala chhangani

shakuntala chhangani (Expert)
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23 March 2010 as per AS 10, in case of new asset, All the exp. incurred uptil the time the asset is ready for commercial use must be capitalised. exp.incurred after the asset is put to use should be capitalised only if these exp. increase the production or revenue earning capacity or the useful life of the asset. Further, if the changed part is the integral part of the original asset, it must be expensed over the useful life of the asset Else it is recognised as a separate asset and is depreciated over its own useful life. In case u hv any further query, u can revert back to me.
Regards, CA Shakuntala Chhangani

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Querist : Anonymous

Querist : Anonymous (Querist)

23 March 2010 If the some part is changed due previous part was scrapped or break down & now new part was installed on machine at the place of old one. Is this capital or revue expenditure. Another Query: How when the part is consumed whether at the time of issue from stores, installed on machine or when the part is completely scrapped & returned to stores.

shakuntala chhangani

shakuntala chhangani (Expert)
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25 March 2010 While incurring the expenditure pay attention to whether the exp. is increasing the benefits from the asset or is just maintaining the same. in the first case, it will be capitalised and in the second case, it will be expensed.
Answer to ur second question is that the part, if capitalised, is consumed over the pariod of time the asset is used and is expensed in the form of dep. over the useful life of the asset. In case u hv any further doubt, revert back to me.
Regards, CA Shakuntala Chhangani