Capitalization of Tools- FIXED ASSETS

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Pramod Chandran (Querist)
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05 January 2021 Hi
Is there any Accounting Standards for Capitalizing the Tools. We are capitalizing the Tools- Moulds, Dies and Punches with 1 year life in the USGAAP & IGAAP.
The question is about the date of Capitalization. Is the date to be considered, when we "put to use" or on the basis of "date of purchase"
Kindly opine
Thanks
Pramod

Aashok Kumar Sharma online

Aashok Kumar Sharma online

(Expert)
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06 July 2024 Under both US GAAP (Generally Accepted Accounting Principles) and IFRS (International Financial Reporting Standards, which are followed in India under IGAAP - Indian Generally Accepted Accounting Principles), the capitalization of tools such as moulds, dies, and punches is governed by specific principles regarding when to recognize them as assets on the balance sheet.

### US GAAP:

In US GAAP, the general principle is to capitalize assets when they are ready for their intended use. Here's how it applies to tools like moulds, dies, and punches:

1. **Date of Capitalization:**
- The date of capitalization is typically considered to be when the tools are ready for use, which generally aligns with when they are put into production or begin to contribute to revenue generation.
- This means the date when the tools are installed and start producing items for sale or use in the production process.

2. **Recognition Criteria:**
- Tools like moulds, dies, and punches are capitalized as fixed assets if they meet the criteria under US GAAP for capitalization of property, plant, and equipment (PP&E).
- This includes being durable, used in production or supply of goods and services, and have a useful life longer than one accounting period.

### IFRS (IGAAP in India):

Under IFRS, the principles are similar but may have slight differences in application:

1. **Date of Capitalization:**
- IFRS also emphasizes capitalizing assets when they are ready for their intended use.
- For tools like moulds, dies, and punches, the date of capitalization would typically be when they are available for use in the production process, contributing to future economic benefits.

2. **Recognition Criteria:**
- Similar to US GAAP, under IFRS (and IGAAP in India), tools are capitalized if they meet the criteria for recognition as property, plant, and equipment.
- This includes being capable of reliable measurement of cost, having future economic benefits, and the cost can be measured reliably.

### Conclusion:

- **Date of Capitalization:** In both US GAAP and IFRS (IGAAP), the date of capitalization for tools like moulds, dies, and punches is typically when they are ready for use in the production process or for their intended purpose.
- **Criteria for Capitalization:** Ensure that the tools meet the criteria for recognition as assets under the applicable accounting standards. This involves being ready for use, contributing to future economic benefits, and meeting specific recognition criteria for fixed assets.

It's important to consult with your company's accounting team or a professional accountant to apply these principles correctly based on the specific circumstances and the accounting standards followed in your jurisdiction.

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