Replacement of Existing Motor during the Useful Life

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A client is considering replacing recently purchased AHU motors (3 years old) with new ones that use 50% less energy. The old motors still have 7 years of useful life remaining. The question is whether this expenditure should be capitalised as an improvement or expensed as a replacement. The consensus leans towards capitalisation due to the significant future economic benefit derived from reduced energy costs.

Rahul Chauhan

Rahul Chauhan (Querist)
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03 March 2020 Client has some AHU motors which is recently purchase 3 years back, wanted to replace the same Motors with motor consume 50% less energy.
Old motor would have useful life for 10 Years.

Should this be capitalized or consider as replacement and charge to revenue?

Rahul Chauhan

Rahul Chauhan (Querist)
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04 March 2020 Hi.. Please help if anybody can add comments

Kamal Kant Mittal

Kamal Kant Mittal (Expert)
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09 March 2020 Hi, I believe it should be capitalised as the new motor is consuming 50% less energy, hence indirectly putting new motor instead of old one will provide extra future economic benefit to the company.

Regards
CA Kamal Kant

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