Capital or Revenue Expenditure

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Shyam Lal Naik (Querist)

06 August 2010 Dear Experts,

Whether 1st year insuranceof vehicles is Capital Expenditure or Revenue Expenditure.

In case of purchase of vehicles, the financiers require that the vehicle is adequately insured.

Please opine with reason.

Thanks & Regards,

Aditya Maheshwari

Aditya Maheshwari (Expert)

06 August 2010 Without first insurance the car cannot be brought out of the showroom and hence is needed to make to ready for its intended use and hence the same should be capitalised as per AS - 10.

Shyam Lal Naik

Shyam Lal Naik (Querist)

06 August 2010 Thanks Maheswarijee.

VINOD ARORA

VINOD ARORA (Expert)

06 August 2010 I have slightly different opinion.

May be that without insurance vehicle cant be deelivered to customer due to traffic or other laws but it has nothing to do with bringing the asset to existance/use. Moreover, this expense is of recurring nature, which cant be capitalised at every instance.

Therefore adhering to Substance over Form, we should charge this expense to P&L as period cost.

Aditya Maheshwari

Aditya Maheshwari (Expert)

06 August 2010 Only the first time insurance needs to be capitalised not subsequent payments.

CMA. CS. Sanjay Gupta

CMA. CS. Sanjay Gupta (Expert)

06 August 2010 Agree with Aditya ji. In our companies we also capitalise first insurance because it is a cost directly attributable to bringing the asset to its working condition or for its intended use.

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