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Rework on Insulation of Steam Pipeline

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Sumit Agarwal

proprietor

169 Points Posted on 27 February 2024

Dear Experts,
In our Company, we had capitalised steam pipeline for 50CR 7 years back. Now the Insulation of steam pipeline needs to be replaced which will cost around 6 Cr. Can I capitalise this cost of 6 Cr on the steam pipeline assets, considering that the same will last for next 4-5 years and also that without this Insulation work steam line may not perform.

Thanks & Regards

Replies (2)

Quick Summary

A company is considering replacing the insulation on a 7-year-old, capitalised steam pipeline, at a cost of £6 crore. The new insulation is expected to last another 4-5 years and is crucial for the pipeline's performance. The discussion revolves around whether this cost can be capitalised as an asset, considering the pipeline's existing net book value and depreciation.

Yasaswi Gomes new

Finance

3328 Points Posted on 27 February 2024

Yes! Cost-7 years accumulated depreciation= NBV. From this, Its not impairment but Overhaul expenses must be deducted. Say NBV is now 30cr and that particular part is 1cr if it wasn't spoiled. You add a new part for 6cr then you must derecognize the old pipeline value and capitalize this value 30-1+6cr