Accounting treatment of AMC alongwith the purchase of Laptop

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When purchasing laptops and their Annual Maintenance Contract (AMC) simultaneously, it's important to understand the correct accounting treatment. While the AMC is invoiced at the time of procurement, it represents a service for future maintenance rather than a cost essential for the laptops' initial operation. Therefore, the AMC amount should generally be expensed, not capitalised, as it doesn't directly contribute to bringing the asset to its working condition or extending its useful life.

Ravi Konda

Ravi Konda (Querist)

16 October 2026 Our company has purchased 50 Laptop vendor has raised Invoice for the same,However at the same time he has raised separate Invoice for AMC of these Laptops for 3 Yrs,Now my question whether the AMC amount needs to capitalised since it is happening at the time of procurement of Laptop ,likewise we capitalise the Insurance amount of Vehicle at the time of purchase However the Insurance amount is for 1 Yr?

Dhirajlal Rambhia

Dhirajlal Rambhia

(Expert)

16 October 2026 No, the AMC amount should not be capitalized. Even though the Annual Maintenance Contract (AMC) invoice was raised at the time of procurement, its accounting nature is a service contract for future maintenance, not a cost required to bring the laptops to their initial working condition.

Dhirajlal Rambhia

Dhirajlal Rambhia

(Expert)

16 October 2026 Under standard accounting frameworks (such as IFRS, or Ind AS), an expense can only be capitalized if it directly contributes to bringing the fixed asset to its location and condition necessary for its intended use, or if it extends the asset's useful life or significantly improves its efficiency.

Ravi Konda

Ravi Konda (Querist)

17 October 2026 Further to clarify It was warranty expenses not AMC then also we need to expense out please clarify

Dhirajlal Rambhia

Dhirajlal Rambhia

(Expert)

17 October 2026 Time period for the warranty/AMC is same, separately billed means it should be expensed out. As warranty amount in general never charged separately.

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