Hi Mike,
I take an example from BPP textbook.
Question:
Demolition Co purchases a machine for $15,000. After incurring transportation costs of $1,300 and spending $2,500 on installing the machine the company are disappointed when it breaks down and costs $600 to repair. Depreciation is charged at 10% per annum with a full year’s charge in the year of acquisition.
The cost to repair 600$, they don't capitalised into value of asset. But I think It breaks down after installing, so the repair should be capitalised as it brings asset available to use .
Am i right?
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10y ago#1"Am i right?" - No, sorry!
It was installed, it worked, it broke down.
The repair is an expense and not capitalisable
Apply your logic to a different scenario
When my 3 year old car broke down recently it cost me $500 to have it repaired (out of guarantee)
Should I capitalise that $500?
When my wife crashed her car into the gate-post last year, it cost me (not claimed through insurance) $600 to repair the car and $200 to rebuild the gate-post
Should I capitalise those amounts? Because the car will not go without it being repaired and that $200 is going to add to the value of the property (?)
In answer to your question, No, you are not correct
I understand now, thank you very much. :)
10y ago#3You're welcome
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