When do you capitalise maintenance costs?

When do you capitalise maintenance costs?

 Capitalisation of costs depends on whether the costs is:
1. Repairs,
2. improvements and replacements,
3. rearrangements and reinstallations, or
4. additions.

How are these accounted for?

Repairs

Repairs may be ordinary (i.e., recurring) or extraordinary (i.e., nonrecurring) are expensed

Improvements v. Replacements

It can be difficult to distinguish between an improvement (or “betterment”) v. the replacement of an asset. Generally, an improvement is substituting a better asset (say, a concrete floor for a wooden floor) while a replacement is substituting a similar asset (a wooden floor for a wooden floor).An improvement or replacement benefits future periods and therefore should be capitalized, using one of three methods, taking into account the asset’s life and better quality and improved quantity provided by the asset. An Improvement or replacement is capitalized.

Rearrangements and Reinstallations

Is the movement of assets from one location to another - costs are capitalized.

Addition

If an addition creates a new asset- all costs associated with the addition are capitalised.