Capitalisation Policy

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Querist : Anonymous

Querist : Anonymous (Querist)

31 July 2010 Hello all.

I would like to seek your comments on the following situation.

Suppose Company X has a capitalization policy of Rs 5,000 (i.e expenditure of capital nature above Rs. 5,000 be capitalized while that falling below this threshold be expensed out). Now the company purchases the following from a supplier in a single transaction.

> 5 Chairs (Rs 2,000 each) - Rs. 10,000
> 4 Tables (Rs 1,000 each) - Rs. 4,000
> 1 Conference table - Rs. 10,000

Total Amount Paid - Rs. 24,000

The question thus is, how will the above transaction be treated in light of the company's capitalization policy?

Should we compare the value of the transaction (Rs. 24,000) against the threshold (Rs. 5,000)?
Should the value of each furniture type (i.e Rs. 10,000 for 5 chairs) be compared with the threshold (Rs. 5,000)?, or
Should the value of a single item (One chair - Rs. 2,000) be matched against the threshold?

Is any standards applicable in this case.

vrnanda

vrnanda (Expert)

31 July 2010 my friend,

the value you need to compare is the value of the asset but not group of asset.

in your case, 5 chairs of Rs. 2000/- each, 1 chair forms an asset, not group of chairs, hence entire 10000/- should be charged offf...............
and 4 tables costing 4000/- should be charged off in the same manner.

conference table should be capitalized in your case as the same is exceeding your threshold.

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