06 August 2012
My query is A motor car has been purchased which will be capitalised but what will be the treatment of following expenses incurred at the time of purchase of the motor car:
1.Road Tax 2.Extended warranty. 3.Insurance Premium. Whether the above expenses will also be capitalised with motor car or expensed out
06 August 2012
Road tax and insurance premium can be clearly capitalised, as they are the cost incurred for bring the car in usabale condition ie without them, the delivery of car cannot be taken. Though they are revenue in nature, they are capitalised as they satisfy the conditions of AS 10.
It is like installation cost of AC.
However, extended warranty is provided as add on. It is not compulsory for entity to pay for taking the delivery unlike road tax and insurance.
Hence it may not fit the stated basis under AS 10. However it can be arguable to get all first time cost to be capiatlised with the asset.
17 September 2012
The cost of extended warranty should not be capitalised as this substitutes a revenue expenditure on maintenance and repairs of such items. hence this should be treated as a prepaid expenditure and charged off to the income statement over the warranty period.
CAclubindia
