Replacement of sodium vapour lamps with led lights

This query is : Resolved

Raja Banerjee (Querist)
Follow

29 July 2017 An organization decided to replace all existing lights in its operational area fitted with high power sodium vapour lamps with energy efficient LED lights in order to have long term benefits like cost savings in electricity consumption, maintenance and also have an aesthetic look.
The organization decided to treat this expenditure as 'Capital Expenditure'.
My question is that whether the accounting treatment adopted by the organization is correct or should the organization charge this expenditure to 'Repairs & Maintenance'?

CA Amrita Chattopadhyay

CA Amrita Chattopadhyay (Expert)
Follow

31 July 2017 The segregation of revenue nature expenditure and capital nature expenditure is generally subjective in nature. As per AS 10 if the items is used for the purpose of providing goods or service and not in normal course of business, it is considered as asset. As per IND AS 16 Property, Plant & Equipment, if the entity expects future economic benefit and can be measured reliably, it can be considered as capital expenditure.

Replacing of lights does not fulfill the above criteria.

Raja Banerjee

Raja Banerjee (Querist)
Follow

31 July 2017 Thank you Amrita Madam for your giving your views on my query. Your views are very comprehensive and has enriched my knowledge.

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