Capitalization of Expenses

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. 

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.