Pls explain whether an replacement of Hard disk or a monitor in a computer qualify for accounting under fixed assets? If it is treated as Revenue expenditure, pls elucidate.
Thanks.
42 Replies
Saurabh Maheshwari
(B.com,ACA)
(5923 Points)
Replied 26 October 2013
No it will be treated as Capital Expenditure....because Hard disk and monitor replacement will enhance the previously assessed working capacity of system
CA girl
(Article Trainee-CA Final)
(1942 Points)
Replied 26 October 2013
What if the new hard disk and the monitor are exactly of the same type that was used earlier?? In that case it would just replace the existing hardware...there is no enhancement in the capacity of the computer right?
Saurabh Maheshwari
(B.com,ACA)
(5923 Points)
Replied 26 October 2013
See Divya...the system with new hard disk will work better than that with old hard disk...thats why there is improvement in capacity and the cost for such replacement(improvement) can be capitalised...
CA Pallav Singhania
(IT System Auditor)
(33362 Points)
Replied 26 October 2013
if such expenditure enhances the performance or increases the life of the asset then such expenses should be Capitalized...
or Else charged to Profit/loss A/c.
Diinesh Jain
(Accountaint)
(26 Points)
Replied 26 October 2013
In Openion
Replacement of hard disk or a moniter in a computer doesnot quality for accounting under fixed assets because it s a revenue expenditure and the benifit of such expenses cannot be treated as fixed expenses
JATIN KAKKAR
(Student CA IPC / IPCC)
(39 Points)
Replied 27 October 2013
if it is specifically mentioned in question capactiy will be enhanced then take it as capex otherwise take it as revenue expense. dont be confused.
V K Vijayaraghavan
(PRACTICE)
(206 Points)
Replied 27 October 2013
You have to write off old PC and capitalise
karan narula0718
(article)
(27 Points)
Replied 27 October 2013
If capacity of the principal asset is enhanced by the expenditure than we should have to capitalised that expenditure for eg:-if in old hard disk(previous hard disk) ,storage capacity is 40gb
But in new it is 80gb than we should have to capitalised it
But if the storage capacity is same as old harddisk ie.,40 gb than no need to capitalized the expense
umesh jain
(mahanandir)
(21 Points)
Replied 27 October 2013
It ll be capital expenditure bcoz it replaced major part and enhance capacity of computer to work faster and better.
venkata kiran
(officer)
(26 Points)
Replied 27 October 2013
Replacement of hard disk do not enhance the computing power of a pc,in the above case if a server is being maintained for running an accounting software and addition o hard disk increases the storage capacity then treat it as capital expenditure,usually hard disk fails rarely And are usually covered by warranty for a periodof 3+ years and are replaced free of cost. So in the above scenario it is better if it is treated as revenue expenditure as cost of hard disk rarely crosses 10% of the cost of the computer.The same yard stick can be used for monitor too depending on the reason and the cost incurred in replacing the monitor.
CA Manan Gupta
(Auditor)
(149 Points)
Replied 27 October 2013
its nothing just an replacement of old component of an asset with new component having latest config.. so it should be in revenue nature.
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