As 10 clarification, urgent!!

A) The expenditure is incurred to preserve and maintain an already existing asset. The object of the expenditure is not be to bring a new asset into existence or for obtaining a new advantage., but to preserve the old asset (can say repair) Hence the expenditure incured for replacing the Cables can be expensed.

B) As far as installation of lightning protection system is concerned,in my view as it results in new & a fresh advantage to the company which the previous system didn"t provide it needs to be capitalised.

Originally posted by : Pawan Verma
	Pls clarify whether the below expenditure needs to be capitalised/Charged to revenue Our unit currently has a very old electrical system and does not meet any electrical safety standards. incidents like frequent failures & puncturing of buried aluminium cables etc were observed in the premises. As such a replacement is required to ensure electrical safety. A consultant has been appointed to undertake a study on safety and suggested Replacement of Cables, Panels and distribution boards of entire premises. A lightning protection system has also been suggested.  So the bottom line is "In order to improve the personal safety and safe working environment and to ensure electrical safety, it is proposed to replace the existing cables, panels & distribution boards and to provide earth pits & complete the installation of Lightlning protection system". There are two components a) Replacement to existing cables etc as stated above b) Installation of Lightning protection system (First time). Pls give your views on both the items??

OLD SYSTEM  NOT MEETING THE SAFTEY AND WELL BEING OF THE ENTIRE SYSTEM..THAT MEANS YOU NEED TO REPLACE THE ENTIRE SYSTEM WITH THE NEW SYSTEM ...not just replacinag with the new cables...if your just chaning the system with new cables it will not surve the purpose...so better to replace the entire system.

it will be  capital expenditure if your replacing the entire system.......

lighitng system will also be the part of the system which will improve the facility of the system also requires capitalisation........

agree with satish

Hi pawan,

As per para 12.1 of AS 10, only the expenditure which improves the present condition (additional benefit is derived) should be capitalised.

For point a) Its only replacement of existing cables which doesnot derive additional benefit or extra electricity. So such expenditure should be charged to profit & loss a/c.

For point b) Since lightning protection system is installed for the first time, it may bring additional benefit (as a preventive measure to safeguard entire electrical system and which improves the performance of electrical sysem). So it needs to be capitalised.