Fixed Assets; Capital or Revenue

S.Srinivasaraghavan (Chief Financial Officer and Co) (11318 Points)
Replied 15 October 2008

1. First Insurance on purchase of a new car. Whether to be capitalized?

Ans: Yes, because, it is incidental to make it worthy of plying only if the insurance is taken.

2. Software; Whether to be capitalized as Compter?

Ans: It depends upon the useful life span of the software.

3. What will be the rate of depreciation on software?

Ans: Amortised over its useful life span.

4. Software like the one TDS Software; Whether to be capitalized?

5. Fire Extinguishers; Whether may be written off @ 100%?

Ans: I suppose you are referring to the wall hanging ones.Yes, as they become spent on their opening and as we do not know when they will be opened.

6. A complete asset costing Rs.15000 when purchased in parts(components) and assembled and house costs Rs.12000/- with none of the component costing in excess of Rs 5000. Whether the whole of the asset may be w.off as the individual cost of all components is less than Rs.5000/-?

Ans: The asset comes to existence only on assembly. The answer is therefore obvious.

7. Software developed in house. How the same should be capitalized? What will be the cost of such a software? How the auditor will verify its cost for the purpose of his Audit under the Companies Act and 44AB of Income Tax Act?

Ans: It is possible to capitalise based on the job card details.

8. Fee paid for seeking extension of the construction time to a Development Authority by a plot owner before the construction date. Whether to be capitalized?

Ans: No, as this is an extraordinary one.

9. A Company has acquired 20 plastic Moulded chairs for Rs. 8000/- i.e., Rs 400 per chair. Whether all the chairs may be w.off in view of the provisions that the asset upto a cost of Rs 5000 may be w.off @ 100%?

Ans: Yes.

1 Like

CA Annie (Chartered Accountant ) (747 Points)
Replied 15 October 2008

As per iAS 16: The cost of an item of plant and equipment comprises:

(a) its purchase price, including import duties and non-refundable purchase taxes, after deducting trade discounts and rebates.

(b) any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management.

(c) the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located, the obligation for which an entity incurs either when the item is acquired or as a consequence of having used the item during a particular period for purposes other than to produce inventories during that period.

Hence First Insurance paid on car may not be capitalised. In case of a business of running car it may be capitalised.

Pankaj Khator (Service) (10 Points)
Replied 17 October 2008

1. First Insurance on purchase of a new car. Whether to be capitalized?

Ans. No, it will be charged to the expenses account as it is not the primary expenses part of the new car and after one year it will be expired, hence in my opinion it shpuld nopt be captalised.

2. Software; Whether to be capitalized as Compter?

Ans. Yes, it should be capitalised, as withouit software the computer will loose its identity and could not be used for work.

3. What will be the rate of depreciation on software?

Ans. The software should be amortised over the period of its licence validity.

4. Software like the one TDS Software; Whether to be capitalized?

Ans. No, it need not to be, but if we purchase software once and it requires only updation in the existing software, then we can capitalised it and updated charges should be charged to expenses account.

5. Fire Extinguishers; Whether may be written off @ 100%?

Ans. It dependes on its value and its useful life. if the useful life will over within one year and could not be used by refilling it or the value is less then 5000/- then we can write off it @ 100/% else it should be capitalised and charge depreciation at the applicable rates.

6. A complete asset costing Rs.15000 when purchased in parts(components) and assembled and house costs Rs.12000/- with none of the component costing in excess of Rs 5000. Whether the whole of the asset may be w.off as the individual cost of all components is less than Rs.5000/-?

Ans. No, as asset came into existence only after assembeling the different parts. When different parts below value of Rs.5000/- assembeled and generate new asset then the value of new generated asset will be the total cumulative cost of every part used for its. Hence it should not be writeoff @ 100%.

7. Software developed in house. How the same should be capitalized? What will be the cost of such a software? How the auditor will verify its cost for the purpose of his Audit under the Companies Act and 44AB of Income Tax Act?

Ans. The cost manpower, materials and components involved in developement of the software, will be the cost of the software and the Assignment in payroll or Job Card or in any internal reports will be the support the cost.

8. Fee paid for seeking extension of the construction time to a Development Authority by a plot owner before the construction date. Whether to be capitalized?

Ans. Yes it needs to be capitalised because without it the civil structure could be come in existence.

9. A Company has acquired 20 plastic Moulded chairs for Rs. 8000/- i.e., Rs 400 per chair. Whether all the chairs may be w.off

Ans. Yes, it can be writeoff @ 100%

in view of the provisions that the asset upto a cost of Rs 5000 may be w.off @ 100%?

Pankaj Khator (Service) (22 Points)
Replied 17 October 2008

First Insurance on purchase of a new car. Whether to be capitalized?