A machinery was installed in Plant 1 of a Company.This machine is dismantled & re installed in another plant ie: Plant 2 of the same company. Will the re-installation & dismantling charges be capitalized or charges as revenue expenditure
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Capitalization of Expenses
Replies (5)
Hi Shailly,
the re-installation and dismantling charges are Revenue in nature and not Capital as a new asset is not coming into existence for the company. It's just a case of transferring the asset from a plant to another :) However, please clarify this with someone else too! Have a nice day!
1. If an expenditure is to be capitalised either it should bring a new asset into existence or should improve the present capacity of the machine.
2. In our case just for either requirement or convience we dismantled the machinery in plant 1 and reinstalled the same in plant 2 and the machine capacity is not going to increase and hence it should be expensed off.
3.on reinstallation in plant 2 with other machines, if it gives synergy effect it can be capitalised.
it shall be capitalised....as new intallation charges are made...they will be useful for life long........
irrespective of amt. & other conditions ,expended amt. charged of to the revenue.....
Following points need to be considered
1. Is the re-installation enhancing the life of the asset?
2. Is the efficiency of the asset is incresed because of re-installation?
If any of the above two questions the answar is Yes, then it need to be capitalised otherwise it need to be chaged to P& L account.
Hope you are clear now.
CAclubindia
