USA IAS 16 (Element of Cost)

[shamama]

According IAS 16 ,Paragraph 16(b) ,any cost directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management should become part of cost of PPE . if an asset get damaged before operating or during installation repair cost to make that asset available for use should be expensed out or capitalized?

 

[kirby]

Expensed. The cost is a repair which will not extend the life of the original undamaged asset nor improve its original undamaged functions.

 

[Daniel221]

The cost of repair should be expensed because this repair is not expected to add life in the asset.

 

[MAMONA]

Shouldn't this repair be capitalized because it is incidental to bringing the asset to the intended use. And if the asset is not repaired the company shall not be able to use it so no useful life.

 

[kirby]

No, repairs are expensed. An improvement could be capitalized. Or to illustrate, if a $30,000 machine is damaged and repaired at a cost of $10,000 you still have a $30,000 machine and not a $40,000 machine.

 

[Fidget]

Quite a good question and highlights one of the many grey areas in the application of accounting standards.

Generally, repairs & maintenance costs are expensed, but in this situation, the repair is a cost of bringing the asset to the "condition necessary for it to be capable of operating..." and therefore arguable that it qualifies as an initial direct cost and can be capitalised in the same way as other direct costs that don't improve or extend the useful life of the asset - transportation, installation costs etc.

Obviously, any subsequent repairs & maintenance costs would be expensed.