A newly set up Private Company has incurred the following expenditure during construction period..Please classify as Capital or Revenue:
Sundry Expenses such as stationery , Printing, postage, telephone & local conveyance.
ANSWER IN PADUKA PUBLICATIONS
They constitute an expenditure indirectly which is indirectly related to construction & HENCE capitalized..
IS THIS CORRECT??
QUESTION 2
A minor fire occurred to a machinery cost of repairing is 5000/- estimated. But company instead used new technology to replace burnt part with new part which will increase efficiency..total cost 50000/-
ANSWER IN PADUKA PUBLICATIONS
Entire 50000 should be capitalized.
I feel only 45000(50000-5000) should be capitalized.
Reply to your 2nd Question `Only if the estimated useful life is increased' the expenditure gets qualified for capitalisation, otherwise total amount needs to be treated as Revenue expenditure'.
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