29 July 2017
An organization decided to replace all existing lights in its operational area fitted with high power sodium vapour lamps with energy efficient LED lights in order to have long term benefits like cost savings in electricity consumption, maintenance and also have an aesthetic look. The organization decided to treat this expenditure as 'Capital Expenditure'. My question is that whether the accounting treatment adopted by the organization is correct or should the organization charge this expenditure to 'Repairs & Maintenance'?
31 July 2017
The segregation of revenue nature expenditure and capital nature expenditure is generally subjective in nature. As per AS 10 if the items is used for the purpose of providing goods or service and not in normal course of business, it is considered as asset. As per IND AS 16 Property, Plant & Equipment, if the entity expects future economic benefit and can be measured reliably, it can be considered as capital expenditure.
Replacing of lights does not fulfill the above criteria.
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