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Regarding the capitalization of the expense incurred by the company for the fixed assets.?

In transferring the new fixed asset for the the first time from the vendor up to the new location at the company to start the production, the management discovered that they should make some removals of some walls to move the big machine and then to re-build again.

The Question is ; Should the cost of removals and re-building to be capitalized and to be added-to the cost of the new assets or not ??

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Question added by Tamer Elbeshbishy , Financial and Administration Manager , Muscat Towers Holding Group
Date Posted: 2016/10/31
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Anil Lalwani
by Anil Lalwani , Chief Accountant , Al Ahli Hospital

Thanks for inviting

In my view cost of removals and re-building to be capitalized and to be added-to the cost of the new assets

Because as per IAS 16 the cost of acquisition and installation is part of assets and it should be capitalised.

Since to start asset's to production its necessary so it should be capitalised. 

Sridhar Rajagopal

This is cost of removal of wall to bring in Machinery and does not anyway relating to acquistion of the asset.Any fixed asset which is modified to increase its performance there  it can be capitalized to that particular asset in this case the wall which could have be classified and grouped into an asset group already.The new machinery is concerned it is not part of its cost of acquisition as it does not add anything to that asset.

Mohammed Abahreh
by Mohammed Abahreh , Finance Director , Jordan Oil Terminals Company

That's depend on two things: the length of useful life of assets and / or the increase in its productivity. if the rebuilding or improvements or addition increase the useful life of the assets, they should be capitalized. in addition, if they raised their productivity and efficiency, they also should be capitalized.

Diyaa Hani Rashid Al-khedair
by Diyaa Hani Rashid Al-khedair , Budget Analyst , General Budget Department

thanks for the invitation..........

 I agree with the specialists answer that should be capitalized and added to cost of the assets 

krishnamoorthy Achutham
by krishnamoorthy Achutham , DY Manager (Accounts) from April , DCW LIMITED,

When any purchase of bing machines are made, there may be so many expenses like freight inward, then installation expenses etc are called expenses for capitalisation.When you captialise the asset these expenses are to be added with basic cost of the machine.

jayalal RS
by jayalal RS , Manager (HR, Accounts & Finance) , KJK FERTILITY AND RESEARCH CENTE

Capital expenditure is the expenditure which includes costs incurred on the acquisition of a fixed asset and any subsequent expenditure that increases the earning capacity of an existing fixed asset.   this will added to the fixed assets and can chrge depreceation on it.

Majid Wangade
by Majid Wangade , Senior Accountant , KANTOUR LIMITED COMPANY ( Real Estate, Construction and Asset Management )

Yes, I Agree with Sir. Anil  Lalwani.

Musedik Abdullah
by Musedik Abdullah , Accounts Officer , JMG Limited

Hello Tamer,The cost of removal should be added to the cost of the new asset and depreciate appropriately while the cost of re-building (reinstating the location to its original state) will be provided for in the statement of financial position. The cost of  reinstating will be discounted you can make reference to IAS 16 and 37.

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