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Hi,
I’m finding it difficult to understand the accounting treatment for overhaul & inspection costs.
As well as the depreciation of overhaul and inspection costs.I couldn’t find a video on it.
Hi,
It is a rarely seen topic hence no videos. All we do is take the initial cost of the asset and allocate a portion of it to the future overhaul cost. This expected cost is then depreciated over the period to the expected overhaul date.
So, imagine a ship that cost 100 million with a life of 20 years. We anticipate that in 5 years time the ship will require a major overhaul costing 10 million.
We would deduct the 10 million from the 100 million to give 90 million that is depreciated over the 20 years. The 10 million is then depreciated over the 5 years.
When we then pay the 10 million to overhaul the ship in 5 years time we then capitalise this amount.
Thanks.
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