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ANY CRETERIA FOR CAPITALISED ASSET???

06 August 2010

HELLO ALL... I WANT TO KNOW DAT IF I PURCHASE ANY COMPUTER EQUIPMENT E.G. RAM, BATTREY, HARD DISK OR WHATEVER WHICH PRICE IS BELOW RS.5000/- DEN IS DAT ASSET CAPITALISED OR NOT?? I HEARD DAT IF ASSET IS BELOW 5000/- DEN WE CAN TREAT IT AS REVENUE EXPENDITURE AS THE GOVT. RULE SAID....

IS IT TRUE???

I PERSONALLY CAPILAISE ANY ASSET WHICH CAN ENHANCE D CAPICITY OF ASSET OR WHICH IS USEFUL MORE THAN 1 ACCOUNTING PERIOD.....

BT I NID CLEAR ANSWER....

WAITING 4 REPLY....

RAKESH CHAUHAN

ANAND(GUJARAT)

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2 Replies

CA. Nishant Jain (Audit Executive) (411 Points)
Replied 06 August 2010

Dear Rakesh,

Whether to capitalise or not depends upon the materiality of transaction and nature of business. For eg. A Tool Kit worth Rs. 10000 is a capital asset for a garage but the same tool kit can be treated as revenue expenditure for a car manufacturing company. Though you are right that anything that enhances the life of an asset should be capitalised.

Also regarding your querry of not capitalising any asset the value of which is less than Rs. 5000 is a Government Rule. I would like to clarrify that there is no such rule and whether to capitalise an item or not is taken care by the Accounting Policies of the company. So you should go through the Accounting Policies of the company before capitalising any item. Also there is a general practice that any asset which is less than Rs. 5000 is 100% depreciated in the year of purchase (But again these all depend upon the Accounting Policies).

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