Fixed asset or repairs and maintanance

Save Share

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

03 October 2012 Hi

Our Company has Rented a Factory Building, and it has been modified and renovated to suit our production activity. Company has debited the expense to repairs and Maintanance saying building being the asset is not owned by the company. thus expenses are revenue in nature

I am of opinion that the expense should be capitalised as benefit from same is not derived just for one year but till the day we use the building thus account as fixed asset and depreciation should be claimed under rate prescribed for building.

Please confirm if the expense is a Revenue or Capital

and method of accounting recommended

CA. Subhash Dangi

CA. Subhash Dangi (Expert)
Follow

03 October 2012 Capitalizing the expenses in respect of modification and renovation is not correct as Factory Building is not owned by company.

Any expenses which are enduring nature for extending life span and production capacity of Existing own asset can be capitalised.

In your case, the expenses incurred to rented factory building are in the nature of revenue.

Querist : Anonymous

Querist : Anonymous (Querist)

03 October 2012 Sir

But the factory has been modified to make it usable, almost as if self constructed asset.

And expense of this nature, wouldnt it make repairs and maintanance account look too abnormal?

and what about the matching concept? the expense of this nature cannot be matched exactly to the revenue of a particular year. the benefit from expense is spread over the number of years in which production will be done in that particular building.

Manish Khandelwal

Manish Khandelwal (Expert)
Follow

03 October 2012 you can treat an expenditure as an deferred revenue expenditure, if the expenditure is heavy in terms of amount and it will provide benefit in future years.
But the same expenditure cannot be capitalized in this case as the asset is not owned by your company.

You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now