Capitalization of Repairs

AS 1877 views 3 replies

Piyush Newar

Awaiting Results

81 Points Joined August 2008

Res Seniors & Dear fellow proffessionals

Please assist me on the issue ASAP:-

There has been a repair of the concealed rain water piping in the 16 floor bulding costing around Rs 20 lacs. The repairs included the following as major expense:

Labour Charges

Material Charges(Cement etc)

Refixing of new pipes where the pipes where broken

Consultancy Charges

The work was on contract for a period of 1 year and has been complete in F.Y 08-09. The payment has also been made up to date.

My view is that:-

Since the repairs have improved the efficiency of the piping and also there has been addition of pipes at places where it was leaking or broken which definitely increases the future benefits from the new repaired piping, IT SHOULD BE CAPITALISED. Please note that,Had the pipe not been repaired it woyuld have been leaking. Doesnt this mean improvement of efficience?

What are the criterias for capitalising the repairs exp?

What criteria supports my view,which i can put forward?

Anticipating a quick response from all.

Thanks and Regards

Piyush Newar

Company's view:-

Its in nature of Repair.

Replies (3)

Amol Gopal Kabra (CA,CS,DISA)

Practicing CA

8639 Points Joined April 2009

The expenditure incured on the replacement of the pipelines or new erection of pipelines is in the nature of Revenue Expenditure. The view of the company is absolutely correct. This is because there has been no addition to the building nor the capacity of the building has increased. So irrespective of the amount of expenditure and time taken to repair, the expenditure is a revenue expenditure and cannot be capitalised.

Suprio

Sr. Manager Accounts & Systems

43 Points Joined April 2009

You have not mentioned about the Building whether it is Admin. Bldg. Or Plant, Whatever it is , But repairs to Building is not enhancing your productivity hence the expenditure will be treated as revenue and not to be capitalised.

triumph-CMA

Chartered Accountant

508 Points Joined February 2009

The expenditure is incurred to maintain the drainage system of the building. It is simply an expenditure for maintainance and not to increase the efficiency or productivity or profitability. Hence it is revenue expenditure.

As far as replacement is concerned only the damaged pipes are replaced,which also is to maintain the system. Hence the companies view is correct.