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Capitalization of Expenses

Shailly (Consultant ) (59 Points)

01 May 2010

A machinery was installed in Plant 1 of a Company.This machine is dismantled & re installed in another plant ie: Plant 2 of the same company. Will the re-installation & dismantling charges be capitalized or charges as revenue expenditure

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Taneesha (Article) (36 Points)
Replied 01 May 2010

Hi Shailly,

the re-installation and dismantling charges are Revenue in nature and not Capital as a new asset is not coming into existence for the company. It's just a case of transferring the asset from a plant to another :) However, please clarify this with someone else too! Have a nice day!

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anand (articled assistant) (28 Points)
Replied 01 May 2010

1. If an expenditure is to be capitalised either it should bring a new asset into existence or should improve the present capacity of the machine.

2. In our case just for either requirement or convience we dismantled the machinery in plant 1 and reinstalled the same in plant 2 and the machine capacity is not going to increase and hence it should be expensed off.

3.on reinstallation in plant 2 with other machines, if it gives synergy effect it can be capitalised.

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