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Hello sir, hope u are well.
sir, I would highly appreciate if u give a little explanation about Major overhaul and Repair, for every say, 5 years. And how to treat in the SFP and SPL.
thanks in advance
Hi,
If we know we need to overhaul the asset every 5 years, then we would depreciate what we expect the cost to be be over 5 years. So, if we bought an asset for 100m and it was going to cost us 5m in 5 years time to overhaul it (say) then we would depreciate teh 5m over the 5 years, and depreciate the rest of the asset’s cost of 95 (100 – 5) over the life of the asset, which is likely to be longer, say 20 years.
When we come to carry out the overhaul in 5 years, the new cost is then capitalised as part of the asset and then depreciated over the period to the next overhaul.
Thanks
I’m surprised we don’t see more of it appear in the exam. If it were to appear then it would be more likely to be in section A or B.
Thanks
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