capitalization

Am I meant to understand this question?

Let me interpret your post!

You are employed, your employer has acquired an asset together with spare parts in case the asset breaks down. Your employer wishes to expense the cost of these spare parts in the year of acquisition, but the auditors say that the cost of the spare parts should be capitalised like the asset is capitalised.

Is that a fair summary of “Should sparepart capitalize?”

The answer really depends upon the reason for purchasing the spare part. If it is literally a spare part to be used in the unlikely event of a break down of the asset, then I believe that I would expense it. If it’s like a spare wheel on a car, to be used regularly by way of regular changing of the wheels, then capitalise.

When a spare part is purchased sometime after the asset has been in use, it would normally be expensed unless the part IMPROVES the earning capacity of the asset.

But if your employer has already bought the spare part and it isn’t being used because the original part is still working, then it isn’t contributing to this year’s revenue nor profits

I’m leaning towards expensing it this year and it would be interesting to hear the auditors’ justification for capitalising

Ok?

You’re welcome