Capitalization of fixed assets

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This query is : Resolved

HARSHIT JAIN (Querist)

13 February 2013 Sir,
kindly tell me than when an asset must be capitalized, its date of capitalization & Threshhold limit?
also if any major repair is undertaken what would be the criteria?

Sanjay Chauhan (IFRS)

Sanjay Chauhan (IFRS) (Expert)

13 February 2013 Expenses attributable to construction of a project or to the acquisition of a fixed asset or bringing it to its working condition, may be included as part of the cost of the construction project or as a part of the cost of the fixed asset.

Once an asset is in working condition, the expenditure incurred after the plant has begun commercial production, i.e., production intended for sale or captive consumption, is not capitalised and is treated as revenue expenditure even though the contract may stipulate that the plant will not be finally taken over until after the satisfactory completion of the guarantee period. (para 9.3 and 9.4 of AS 10)

For threshold limit one may refer Schedule XIV whihc had Rs 5000 as the limit to expense any capital expenditure.

With reference to repairs please refer para 12 of AS 10.

Frequently, it is difficult to determine whether subsequent expenditure related to fixed asset represents improvements that ought to be added to the gross book value or repairs that ought to be charged to the profit and loss statement. Only expenditure that increases the future benefits from the existing asset beyond its previously assessed standard of performance is included in the gross book value, e.g., an increase in capacity.

Regards,

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