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Amc charges to be capitalised or expensed out?

Himanshu (Article) (53 Points)

20 May 2014

my client has incurred a cost of 178000+58000 rs towards AMC charges in the current year. whether it should be treated as revenue or capital expenditure..? please state with the reason. and also tell me that in last year the same was treated as fixed assets, than what will be the treatment of the same,.???? ans asap please

thanks in advance

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10 Replies

Income Tax Wala: (Fin. Expert) (Chartered Accountants) (2015 Points)
Replied 20 May 2014

kindly let us know you question in details specially assests on which these AMC charges is being incurred

1 Like

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HEM@NT G@RG (ARTICLE ASSISTANT) (313 Points)
Replied 20 May 2014

TELL ME THE NATURE OF ASSETS OF WHICH THE AMC DONE.

ALSO TELL ME THE FOR WHAT PERIOD THEY CHARGED AMC. LIKE 1 YR OR MORE.

1 Like

CA Vinayak akula (none) (38 Points)
Replied 20 May 2014

AMC charges are incurred annually and they are to be treated as revenue expence and not to be capitalised if in the previous year it is been capitalised adjust such capitalised amount against accumulated reserves

1 Like

Himanshu (Article) (53 Points)
Replied 20 May 2014

@ Tax Pandit : The AMC charges are related to an accounting software purchased by my client.

Himanshu (Article) (53 Points)
Replied 20 May 2014

@ Hem @ nt g @ rg : The AMC charges are charged annually.

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Income Tax Wala: (Fin. Expert) (Chartered Accountants) (2015 Points)
Replied 20 May 2014

Originally posted by : Himanshu
	@ Tax Pandit : The AMC charges are related to an accounting software purchased by my client.

hI HIMANSHU

any expenditure which is being incurred to maintain the existing assets would be treated as revenue expenditure hence charges to profit and loss account.

Binod (Student CA Final ) (386 Points)
Replied 20 May 2014

AS per AS 10 - Accounting for Fixed Assets

Subsequent expenditures related to an item of fixed asset should
be added to its book value only if they increase the future benefits from
the existing asset beyond its previously assessed standard of
performance.

And the expenditure incurred not be regular nature.

So it is good to treate AMC as revenue nature not capital.

1 Like

srinivasan (service) (898 Points)
Replied 20 May 2014

Hi himansu. Amc charges in the case of software is normally charged for the updates. Patches and support. It will neither bring a new asset or lead to capacity increase etc. Its to ensure smooth functioning of the software hence only revenue in nature.