Jayanta (Service) 26 August 2020

Capitalisation or expensed to revenue

We have sent one defect (earlier imported) item to foreign supplier for repair under GR Waiver. Repair cost runs in to Euro 1. 70 Lakhs upwards- definitely giving this a new life. Whether this is expensed to P & L Account or be capitalised? AS 10 -ICAI Guideline, ((IAS-16--directly attributable costs--here must be additional probable future economic benefit associated with this subsequent expenditure that will flow to the entity.) Kindly guide,
Regards,

Jayanta Bandyopadhyay

26.08.2020

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Quick Summary

This discussion explores whether significant repair costs for an imported item, sent to a foreign supplier for repair under a GR waiver, should be capitalised or expensed to the P&L account. Guidance based on AS 10 and IAS 16 is sought, considering whether the expenditure enhances the asset's future economic benefits, increases its useful life, improves efficiency, reduces costs over multiple periods, or boosts production capacity.

2 Replies

Rama chary Rachakonda (Secunderabad/Telangana state Highcourt practice watsapp no.9989324294 ) 26 August 2020

A 'Capital Expenditure' is an acquisition or upgrade that permanently increases the value of an asset. ... In contrast, any expenditure that serves to restore or maintain, rather than increase, the value of an asset cannot be CapEx — it's simply repair or maintenance.

VIJAYA SARADHI MAGANTI 29 August 2020

As-10 clearly mentions that the expenditures incurred on an asset can be capitalised if they result in
i) increase in useful life.
ii) increase in efficiency(quality of output) of asset.
iii) savings/reduce costs for more than one accounting period.
iv) increase it production capacity from its original capacity(capacity when it is purchased).