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Capitalization of capital goods

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Querist : Anonymous

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Querist : Anonymous (Querist)
18 January 2012 please provide defination of capitalization.

and give an example of capitalization of capital goods.

Thanking you,
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CA Siddhartha Bhardwaj

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CA Siddhartha Bhardwaj (Expert)
12 May 2012 Capitalization means treating the expenditure as an ASSET and not as a revenue expense.

An expenditure shall be treated as an ASSET if such expenditure is expected to provide benefits over future periods.

For eg. plant & machinery, vehicles, furniture.

The amount to be capitalized shall be the amount paid for acquiring the asset and the costs incurred to bring the asset to its working condition.

Entry:

Fixed Assets A/c Dr
To Bank A/c
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