14 July 2010
Hi, My question is that one of our clients purchased a new car worth Rs 800000 & paid 35000 for the car RC & Insurance. whether dis RC & Insurance capitalized to the Car A/c or not? or only RC is capitalized?
14 July 2010
I HAVE CHECKED ABOVE LINK......ITS YOUR VIEW....IN MY COMPANY ALSO 1ST INSURANCE PREMIUM ON CAR IS CAPITALIZED AND AUDITOR HAS NEVER OBJECTED. LET OTHER EXPERTS GIVE THEIR VIEW.
14 July 2010
In my case i asked auditor should it be capitalized and he said off-course. Not only in my company i have seen many company and professional doing the same. Anyways always nice to come across different opinions. Views of other experts still awaited.
15 July 2010
Yes in Class 11th i think it was told to us that anything that increases the Life of the Car or its efficiency or helps making the asset in use conditon then it should be capitalized. Since if in the First Yr if the Car Insurance is not Capitalized thn the CAR cannot be put for Use. Hence it is capitalized.
The concept is same as the Freight Charges paid for bringing the Machine to Factory. They are also capitalized
Freight is paid to bring machine to factory to put to use.... Here if you dont take insurance than also the car will run on roads... it need engine and not insurance to work....
15 July 2010
Insurance is a recurring charge. However till the time there is no insurance of the car the same cannot be taken out from the showroom. So first time insurance is compulsory to use the car and hence the same should be capitalised.
Subsequent payments towards insurance should be charged to revenue.
This issue has also been discussed here https://www.caclubindia.com/experts/purchase-of-car-entry-please-385275.asp
15 July 2010
COMPLETELY AGREE WITH ADITYA JI. WITHOUT INSURANCE CAR CAN NOT HIT THE ROAD. IT IS COMPULSORY EXPENDITURE INCLUDED IN THE COST OF CAR BY THE SUPPLIERS.
15 July 2010
I think Mr Shivang has been answered by My other colleague experts. However let me add one more thing that even the Vehicle TAX & the Road tax paid in the First yr are also Capitalized
15 July 2010
Further to add vehicle tax and road tax is usually paid for a long period of time usually more than 5 years at the time of purchase itself and hence is also capitalised.
14 June 2013
Insurance is compulsory even in subsequent years. That does not mean that it is to be capitalised every year.
Even the insurance paid in first year is for the running of the car in future. Car insurance is different from insurance which is paid for transit of Assets.
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The insurance premium paid is for insurance coverage in the first year only and should be charged off in the year to which it pertains. Deferring the insurance expenses over the life of vehicle would defy the matching concept as well.
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