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JJavierC.
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- April 2, 2025 at 8:16 pm #716449
Good evening,
I was studying the chapter of IAS 37 Provision, Contingent liabilities and contingent assets from the BPP course book. In the book there is a section which explained Capitalised provision costs
it explains “Costs which are capitalised will be depreciated over the useful life of the machine (or if it relates to a specific overhaul or major refurbishment, the useful life prior to that date). So, if a machine requires a major refurbishment every five years in order to remain functional, then the capitalised provision will be depreciated over the five year.
This is demonstrating the accruals concept of accounting as the costs relating to the asset (both its used and the refurbishment) are spread over the period when the revenue is generated”
The book gives the double entry as Dr NCA and credit Provision.
However, in the ACCA study hub the study resources about this standards says “In addition to routine maintenance, some assets require substantial expenditure every few years for major “refits” or refurbishment and the replacement of major components. These costs should not be provided for; instead, IAS 16 applies” and in the examples given the material explains that the provision is not recognized since the company can avoid the expenditure by selling the machine.
Could you please explain if what the book is saying is correct or both are correct and I am just confusing two different things?
thank you in advance
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