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Fixed Asset Capitalization - Repair versus Capital
I'm in the forestry industry. As mundane as it may seem, I wonder if anyone has a policy or sub-policy they might care to share on how they decide whether a repair to an existing asset may reasonably be capitalized rather than expensed?
Replies to This Discussion
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Permalink Reply by Sachidanand (Sacha) Singh on -
Take an extreme case. I buy a used discarded boiler and get it refurbished to get useful life of 10 years. It is akin to buying a second hand boiler with useful life of 10 yeras and there will be no second opinion on capitalising the refurbishing costs.
A good rule of thumb is extension of economic life. Consider a high capacity pump, that comes with economic life of 10 years. After say 8 years or so I get it refurbished and its life is extended up to 15 years (additional five yaers) - I think I would capitalise the expenditure incurred on refurbishment and write it off over next 7 years.
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