Under what conditions can subsequent expenditure of assets be capitalised?

Under what conditions can subsequent expenditure of assets be capitalised?

• A. All maintenance costs
• B. It enhances the asset's benefit, relates to overhaul or major inspection, or replacing a component
• C. Only routine repairs
• D. All improvements must be expensed

Answer: (B)

Expenditure after initial recognition is capitalised only when it creates additional future economic benefits beyond the asset’s original condition. This happens when the work enhances the asset’s benefit, or when you undertake a major overhaul or inspection that extends the asset’s life, or when you replace a component with something that increases capacity or efficiency. In those cases the cost is added to the asset’s carrying amount. Routine maintenance or repairs that merely keep the asset in its current state are expensed as incurred. Some improvements can be capitalised if they extend life or improve performance, while others (like ordinary repairs) cannot. Under component accounting, you capitalise the replacement cost if it provides future benefits and derecognise the replaced component’s carrying amount.

Expenditure after initial recognition is capitalised only when it creates additional future economic benefits beyond the asset’s original condition. This happens when the work enhances the asset’s benefit, or when you undertake a major overhaul or inspection that extends the asset’s life, or when you replace a component with something that increases capacity or efficiency. In those cases the cost is added to the asset’s carrying amount.

Routine maintenance or repairs that merely keep the asset in its current state are expensed as incurred. Some improvements can be capitalised if they extend life or improve performance, while others (like ordinary repairs) cannot. Under component accounting, you capitalise the replacement cost if it provides future benefits and derecognise the replaced component’s carrying amount.