Accounting for tyres of car purchased

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Cost of replacing car tyres including fitting charges is treated as revenue expense, not capitalized, since it does not increase asset capacity. Total amount should be charged to profit and loss account.

Querist : Anonymous

Querist : Anonymous (Querist)

25 November 2011 PVT LTD COMPANY HAS A CAR. THE COMPANY PURCHASED ALL 4 NEW TYRES FOR THE CAR AMOUNTING TO RS 18000 AND SERVICE CHARGES TAKEN FOR FITTING THE TYRES -RS 700.
AS ALL TYRES ARE NEW AND IT WILL INCREASE THE LIFE OF CAR. WILL IT BE 'CAPITALISED AND ADD TO WDV OF CAR' OR EXPENSED OFF?IF CAPITALISED THEN RS 18000 OR 18700.?

Dintakurthi Tirumala

Dintakurthi Tirumala (Expert)

25 November 2011 It would be debit to P&L A/c because tyres increases the life and running capacity of the car but not the capacity (like either setting or load) of the car increases thus there is no any capital expenditure so written off as expenditure of Rs.18,700.
Just like as machinery think your self if any repairs to machinery i.e replacing the parts of the machinery which are required to run and work the machinery is to be treated as expenditure there is no increase in the capacity (i.e Production capacity) of the machinery but any additional item installed to the machinery to increase it's production capacity due to the changes of technology or any other then it is capitalise. So In short due to the changes to the fixed assets is any increase to the production capacity of such asset then it would be capitalise oterwise treated as expenditure.
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