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Treatmnet for Additions to Origional Asses

10 May 2007

Can anyone tell me regarding accounting treatment for addition of Fixed assets in the other financial year..Whether New assest code needs to creat for additions or we can just modify the origional cost

Anita

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4 Replies

Sambu Suresh (CA Job) (564 Points)
Replied 10 May 2007

this is subject to materiality of the amount , technical, and the identity of the asset purchsed by u.

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Navin Kumar (211 Points)
Replied 10 May 2007

Dear Anita
The addition in the capital asset is normally routed through the adjustment column. The addition to an existing asset may take place in the form of Renovation and Modernisation, Capital spare or recasting of some loan liabilty( specially in the case of a foreign loan liability FERV AS-11). By the way I can help you if you could please post your specific query to me at navinkumar @ ntpc.co.in.

Navin Sr Finance Officer NTPC Limited

The One (379 Points)
Replied 10 May 2007

The One Says:

Capital Asset Code usually implies a specific letter or number or combination assigned to specific assets or for type of asset or based on the financial source of the capital asset or could indicate its status - now which one do you mean?

For Eg. If the asset is a new asset and addition to an existing asset whose code is say AA and this is the first addition an new code say AA1 could be generated to distinguish between them in the records of fixed assets.

But for accounting purposes, the new asset if an addition to existing fixed assets would be shown as just that "Additions during the year" column. Further if it increases the life or efficiency of the existing asset the depreciation would change accordingly.

Hope it helps.

Manmohan Sharma (28 Points)
Replied 10 May 2007

Dear Anita,

This is a vallid question which people often use to ask. I wll try to answer hope you will get it to your satisfaction.

As per AS-10, Stand-by equipment and servicing equipments are normally capitalised. Machinery spares are usually charged to the profit and loss statement as and when consumed. However, if such spares can be used only in connection with an item of fixed asset and their use is expected to be irregular, it may be appropriate to capitalised. Thus if the assets purchased in the current year is of the above said nature it has be capitalised and should be shown as addition to the old asset.

Further an expenditure is required to be capitalised only if has increased the future benefit from the asset. The future benefit may be increased by way of increase in capacity or increase in useful life of the assets.

As far as the code is concerned you can arrodingly creat a code if the assets is seperatly capitalised.
But even if the new part/assets is considered as a part of original assets, it can be capitalised under a seperate code if the useful life of the new asset has shorter or longer useful life.

Regards
Manmohan Sharma