Capitalization of extended warranty charges

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Venkateswarlu Yeruva (Querist)
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07 September 2011 Hi

We have purchased computers on a theree year warraty and the total cost incurred is capitalized at the time of acquition. After 3 mnoths of capitalization, we have taken additional warranty for one more year and we have paid Rs. 741216 towards extended warranty. Whether these charges to be capitalized or expensed?

CA Siddhartha Bhardwaj

CA Siddhartha Bhardwaj (Expert)
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20 September 2011 Only those expenses are to be capitalized which increase the performance or the output or productivity of the asset.

Extended warranty does neither of the above. Accordingly, it will be treated as a revenue expenditure.

CA Pushpendra Gaur

CA Pushpendra Gaur (Expert)
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03 October 2011 i agrees with the expert

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