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Capitalisation of expense

CMA RAVI (ASSISTANT MANGER - FINANCE) (478 Points)

25 December 2012

Can we capitalize repair and maintainance expenses incurred on company owned building?? Explain with accounting entry

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9 Replies

Ashish Ranjan (Chartered Accountant in Practice) (188 Points)
Replied 25 December 2012

Repair and maintainance expenses can be captalised only if the expense results into increase in useful life of the asset or results into extension or enhanncement of asset.

If the expense has been incurred only to restore the asset in its original form, it cannot be capitalised and should be charged to revenue.

1 Like

Ravishankar K (Accountant) (461 Points)
Replied 25 December 2012

that repair and measurement will be treated as an asset and be entered into measurement book , usually buiilding wiring , fans switches etc go into measurement book,

asset ac/ dr

bank ac cr

but if hte work is very less amt like 2000 - 3000 rs we dont capitalize it, depends on our budget and org policy we capitalize repairs & maintenance works .

praveen (Chartered Accountant) (6971 Points)
Replied 25 December 2012

You will really have to clasify whether that expenditure is capital in nature or revenue in nature.

To justify that it is capital in nature you will have to see if the following attributes are present.

a) You are the owner of the asset

b) The expenditure will yield some benefits for more than 1 year

c) It increases the capacity of the asset.

In case any of the above attribute is not applicable, then you cannot capitalise. Otherwise you can take it as expenditure

1 Like

work is worship (Service) (2728 Points)
Replied 25 December 2012

Originally posted by : Ashish Ranjan
	Repair and maintainance expenses can be captalised only if the expense results into increase in useful life of the asset or results into extension or enhanncement of asset. If the expense has been incurred only to restore the asset in its original form, it cannot be capitalised and should be charged to revenue.

Perfectly clarified..

CA Sanjay Bag (CHARTERED ACCOUNTANT) (3340 Points)
Replied 26 December 2012

Originally posted by : Ravishankar K
	that repair and measurement will be treated as an asset and be entered into measurement book , usually buiilding wiring , fans switches etc go into measurement book, asset ac/ dr bank ac cr but if hte work is very less amt like 2000 - 3000 rs we dont capitalize it, depends on our budget and org policy we capitalize repairs & maintenance works .

Fully Agreed.

Ashwini Kumar Rohilla (M.Com and CA-FINAL) (949 Points)
Replied 26 December 2012

Originally posted by : Ashish Ranjan
	Repair and maintainance expenses can be captalised only if the expense results into increase in useful life of the asset or results into extension or enhanncement of asset. If the expense has been incurred only to restore the asset in its original form, it cannot be capitalised and should be charged to revenue.

It is the perfect answer.............................

JOURNAL ENTRY is...........

For capitalize the Expenses

Assets A/c Dr.

To Bank A/c

For other......

Repair A/c Dr.

To Bank A/c

CS,CA F,Numrologi TusharSampat (CS CA F Numerologist Astrologer Graphologist Face reader Vastu Expert) (85930 Points)
Replied 26 December 2012

Originally posted by : praveen
	You will really have to clasify whether that expenditure is capital in nature or revenue in nature. To justify that it is capital in nature you will have to see if the following attributes are present. a) You are the owner of the asset b) The expenditure will yield some benefits for more than 1 year c) It increases the capacity of the asset. In case any of the above attribute is not applicable, then you cannot capitalise. Otherwise you can take it as expenditure

AGREED.

Jag Bhushan Sharma (Faculty in a B-School) (633 Points)
Replied 27 December 2012

I am more aggreable to the view that repairs and maintenance expenses should be treated as revenue item and not capitalised if they are purely for keeping the building in proper and usable condition. I am attaching a link on some videos for CPT, for your kind feedback. https://www.youtube.com/user/jbsclasses