Hi all, Assuming a company with a fleet of delivery vans decide to replace the engines for a certain cost, x. Would this be expensed or capitalised and what rationalising do we use? Thanks in advance!
Expensed under repairs and maintenance would be my thought.
Also, let me add that decisions like this probably will not be on the exam. CFAI will probably more interested in why the decision to capitalize or expense the initial purchase of the vehicle is important to this fiscal period and future periods. IE what are the effects on NI, Cash Flows, etc.
I would say that it depends whether you classify this expense as a repair & maintenance expense or you say you upgrade your vans, i.e. you are going to increase their usage period and make them work better than expected. If change of engines is only due to the fact that they do not work and without this vans are unuseful than it should be expensed…
I think it should be capitalized as the van will not be able to operate with the old engines to the same capacity as new engines. This can be only expensed if there’s no extra benefit of replacing the engines. Cheers Sumo
is it a routine repair that takes plice from time to time or something extraordinary? like overhaul?
Thanks people. It might not be a complete question. As brianr said, most questions ask for the effect for using a certain method. But thanks!