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capital or revenue

Ankit (Chartered Accountant) (107 Points)

25 August 2009

hey all

i have a query

if batteries of inverter are replaced for Rs.50000/= wether it will be treated as capital expenditure or revenue expenditure.

I have treated it as capital expenditure.

Please reply

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16 Replies

CA Ramesh Kr Verma (Partner) (138 Points)
Replied 25 August 2009

You are correct as changing of battery will enhance the life and potential of the inverter it should be capitalised.

Regards,

Ramesh Kr Verma

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hemal (CA FINAL) (176 Points)
Replied 27 August 2009

Incurring expense on battery is not of enduring nature. It is expenditure which has to be incurred at regular item and moreover it does increases the efficiency of the Inverter beyond previously assesed level of performance.

llllVICTORllll (Internal Auditor) (511 Points)
Replied 27 August 2009

capitalising is correct i think but, somehow, as replacement of battery can also be argued that it is done to keep the inverter in good condition, , and not make any improve in performance, thus thus can be taken as regular maintance expense, be taken as revenue expenditure..could this arguement stand?

Bhavik Davda (Proprietor) (238 Points)
Replied 27 August 2009

The inverter has no value without its battery, and the replacement cost the battery is considerably good as compare to the total cost of the inverter. As said by Ramesh sir the inverter will enhance the overall life of the asset, it should be treated correctly as capital.

Bhavik Davda (Proprietor) (238 Points)
Replied 27 August 2009

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CA munjal (articled clerk) (100 Points)
Replied 28 August 2009

As per AS 10 any subsequent expenditure on Fixed asset should be capitalised only if increases the efficiency of fixed asset beyond it's previously assedesd level of performance. Replacement of battery only ensure that Inverter works properly and not increases the efficiency. So in my view it should be charged to P&L a\c.

CA. Basavraaj (Deputy Manager - Dalmia Cement) (49 Points)
Replied 28 August 2009

It is REvenue Expenditure. THe expenditure is incurred for maintainance.

ashish gupta ( student) (1922 Points)
Replied 28 August 2009

M agree with mr. basavraj

Kaustuv (Practicing CA) (1773 Points)
Replied 31 August 2009

As per Para 23 of Accounting Standard-10- " 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".

An ideal example of such situation would be increase in capacity of a machine. Replacing a worn out battery does not by itself improve the previously assessed performance of the inverter. So it shoud not be added to the value of the asset and be charged off.

1 Like

HARSH GOENKA (MANAGER ACCOUNTS) (268 Points)
Replied 31 August 2009

I AGREE WITH Mr. HEMAL & Mr. KAUSTAV EXPENDITURE ON BATTERY IS OF REVENUE NATURE IT DOESNOT ENHANCES ITS CAPACITY

MOREOVER WHAT IF THE BATTERY SINKS?

THEREFORE IT IS OF REVENUE NATURE

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jugal chandak (article) (48 Points)
Replied 01 September 2009

as 10 on fixed assets provides that subsequent expenditure shall b capitalised only if it increase the efficiency of the assets.if the expenditure are to make the assets in the same capacity or efficiency then such expenditure are of revenue nature

sandeep sharma (AM) (24 Points)
Replied 07 September 2009

what if inverter assume it as machine and there are number of bettery in stock, which we have purchased just to replace whenever it needs to be. I think if there are spare parts which can be specifically used for a particular machine only, should be capatilised with the machine (here assume it inverter - Fixed asset).

So I believe that the battery replace is not a maintenance but to capitalise along with machine

Nikky (Chartered Accountant) (552 Points)
Replied 10 September 2009

Charging to revenue will be correct

Pulkit Agarwal (CA. Final) (455 Points)
Replied 18 September 2009

It should definately be capitalised. If anyone says, that batteries are put for the purpose of mainainence, plz answer me that how is the expenditure on paintaing the showroom treated?????