Capitalization of Repairs

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Piyush Newar (Querist)
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01 June 2009 Please assist me on the issue ASAP:-

There has been a repair of the concealed rain water piping in the 16 floor bulding costing around Rs 20 lacs. The repairs included the following as major expense:

Labour Charges

Material Charges(Cement etc)

Refixing of new pipes where the pipes where broken

Consultancy Charges

The work was on contract for a period of 1 year and has been complete in F.Y 08-09. The payment has also been made up to date.

My view is that:-

Since the repairs have improved the efficiency of the piping and also there has been addition of pipes at places where it was leaking or broken which definitely increases the future benefits from the new repaired piping, IT SHOULD BE CAPITALISED. Please note that,Had the pipe not been repaired it woyuld have been leaking. Doesnt this mean improvement of efficience?

What are the criterias for capitalising the repairs exp?

What criteria supports my view,which i can put forward?

Anticipating a quick response from all.

Thanks and Regards

Piyush Newar

CA Devanshi Gandhi (Ajani)

CA Devanshi Gandhi (Ajani) (Expert)
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01 June 2009 it can not be capitalised as there is no increase in the efficiency, its just a replacement as its gng to perform the same function.

CA Nitin Wadhwani

CA Nitin Wadhwani (Expert)
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01 June 2009 In terms of commercial expediency, the above expenditure is incurred for continuity of business and not for any increase in the efficiency which is of enduring benefit.
So, it should be charged to Profit & Loss A/c.

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