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Capitalization of fire extinguisher

Tanvi Raheja (student) (58 Points)

20 December 2013

Hi All,

I am working in Event Management Co.

We have purchased a fire extinguisher but amount is very low and we have purchased this for an event and will be used when we go for other events after this.

Is it possible to charge this amount as an expense under head consumables / event management expenses or i must capitalize it?

Please suggest its urgent!!!

Many Thanks

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3 Replies

Siddharth (Article Assistant) (111 Points)
Replied 20 December 2013

It should be treated as revenue expenditure because as per my knowledge the fire extinguisher contains expiry. It does not stays for a substantial period of time like an asset. & even the fire extinguisher does not generate any income for a business which is main pre condition for an item to be called as an asset.

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DDDDDD (.) (176 Points)
Replied 22 December 2013

Partly i agree with siddharth's reply.. The fire extinguisher should be treated as a revenue expenditure reason being

As per Para 6.1 of AS 10 "Fixed asset is an asset held with the intention of being used for the purpose of producing or providing goods or services and is not held for sale in the normal course of business"

The fire extinguisher is not used for the purpose of producing or providing goods. Thus it cannot be capitalized.

Usage of a asset for subtantial period of time. Or usage of an asset for more than one year etc is not necessary for capitalising an asset. Even an asset with a life of one month can be capitalzed. It all depends upon the purpose.

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