Analogically, when you replace that part on a vessel, you should derecognize carrying amount of the replaced part from the vessel and capitalize the cost of new part into the vessel. I hope I understood you question well. Hi Siraj, yes, the change in a depreciation is simply a change in the accounting estimate in line with IAS 8.
You account for that prospectively, so no restatement of previous periods. Hello Silvia, I trust you are well. However, the sale will not crystallize until the end of this year. The standard says not to depreciate or amortise while the assets are in the category, but as a business, we are still using it to generate revenue until the time it is transferred to the buyer. Hallo Madam Silvia,can you asist me,how can we eastimate depreciation of 2nd hand old machinery that we bought from the pawndshop without knowing when it was firstly used.
I have a situation raised in my accounting class in which an entity wants to build a building above a man-made island. Hence that building is located at the sea just like the Burj Al Arab in Dubai. The problem is how will you account that man-made island or man-made land, is it part of the cost of the land or cost of the building? I am also thinking that the man-made island may be subject to depreciation since it is artificial.
Can this man-made land stay there forever? Or will it require some maintenance? Also, I would definitely treat the land and building as 2 separate assets as they will probably have different useful lives. IFRS require you treating significant part of assets as a separate asset for depreciation purposes. Hope it helps! Can we in any circumstances capitalize per-incorporation expenses.
For eg. After the completion of studies and finding out the feasibility of the project, a separate company is formed who will then construct the project. The expenses incurred for pre-feasibility studies are adjusted in the form of equity investment in the books of company carrying out the pre-feasibility studies.
If you could confirm as to how to account in such scenarios. How do we account where Running and Maintenance expense is carried over beyond a one financial , for eg. You know the advances are normally treated as advance and also accounted as advance in the books , are there any exceptions for eg advance against capital expenditure and book advance as an capital work in progress or all kinds of advance whether capital or revenue in nature has to be shown as an advance only. Hi Sonam, in reality yes, there are differences between advances, according to their nature.
Some advances are monetary asset e. And you treat monetary asset differently from non-monetary asset. Thank you for your site. I have some experience in IFRS, but I prefer to read your articles one new things first as it is so easy to understand. It capitalises the related expenditures and one day after testing it is proved to be ready to operate as intended by Management and put in operation with the relative depreciation to be started. However, Company need to finalise activities around the well, build road to the well, site preparation, concreting, fencing etc while well is already in operation.
All these expenses are quite significant. We can not continue capitalisation of them in the cost of well since, since it is already in PPE. You mentioned in one of the comments below in the question Ameyedowo as I have that we should not capitalise them separately as the costs road works to site does not classify for capitalisation. As well those cost do not classify for capitalisation of the well since they neither improve capacity or life of the well.
Is there only one option left just to expense? It looks odd. In my opinion those road construction costs, fencing to be capitalised as separate assets. Can you please share your ideas on the subject? I would capitalize the expenses you mentioned, sure.
For other expenses, treat them as a subsequent expenditure if they cannot be treated as a separate asset. For example, concreting — what is it for? Is it improving something, like stability or useful life of the well? It is the first-time expense? It is you that brought confidence in me.
Now i think that i can appear. Silvia I think that an example with a new building would fit to this case as well. And hope it will be useful since more clear for the most people. There is a new building, commissioned and already used…but there are some activities ongoing around… making access to the building, paving around it etc…I know may be is a strange in some developed countries to have commissioned a building without a final access to it and fencing, but it can happen in the different countries.
Therefore, this access to the building neither improves capacity nor useful time of the building…therefore can not be capitalised to cost of the building. But having meet the opposite opinion that we should not capitalise cost of roads to the site… I was wondering whether we have are doing something wrong. I think that this paving and road to the site meet definition of the asset, since it will bring the value to the Company less problems with parking, car breakage, fuel consumption etc and can be measured reliabely, it will be used during the period more than 12 months…Usually these expenditures are quite high and to expenses theme looks very strange.
I would be happy to hear a different opinion…may be I am missing something important and hope it will be useful for other readers…. Thanks for your great website. I have a question for you around pre-opening costs for a new hotel. There are often success fees or finders fees paid to securing a contract for a new hotel. The hotels then under go large refurbishments before they open. There would be 4 options in treatment I can see.
I would really appreciate your thoughts on what you think is the best treatment under IFRS and what you have seen in practice. Really, finder fees relate to assessment of other sites and properties. But I tell you, I have seen various treatment in practice, some companies capitalized also finder fees, but then auditors examined their nature and had their say. What is the purpose of zebra? How are you monetizing zebra?
Are you getting money from people who came to observe zebra? Are you having this zebra for breeding an offspring its children and selling them? You simply cannot capitalize general pre-operating expenses as they would not meet the definition of an asset. With regard to exchange rate differences — I think my article on how to account for prepayments in foreign currencies could answer to your question.
Dear Silvia, I am impressed that you have been diligently answering the queries, well done! A quick question for on assets under construction. We are building a production factory and are capitalizing directly attributable costs. We pay rent on that piece of land that the factory is being built.. I hope we can capitalize the rent expense during the construction period? I am really impressed and enlightened with all the information available here on property plant and equipment capitalization.
We have lease rentals and this building which is an operating lease was operational as a clinic till end of and from jan the place plus is going for an overhaul to be made as a medical day surgery center. Dear Shareej, this looks like an operating lease of a building and it will be continued as an operating lease, am I right?
In this case, no, you should not capitalize operating lease rentals of the building itself. However, you can capitalize leasehold improvements overhaul. Gehad, I guess that incorporation costs are just associated with setting up a business and not with the acquisition of some particular asset — in such a case, you indeed need to expense them as they do not meet the definition of an asset.
Yes, especially long-term contracts. But it depends on the specific conditions of the contract. Can you send me any any IFRS quote which donot allow us to capitalize operating lease rentals of the land where we are constructing the building to the cost of the building. Hi Usman, I am not aware of such a quote. In fact, the opposite can be true. Amounts charged under operating leases during construction period can be viewed as directly attributable cost — but you need to apply this approach consistently.
Hi, Jasmin, from the point of view of an entity owning the assets — the question is how the operating agreement is structured. Is it an operating lease? Or a finance lease? What are the specific provisions in the contract?
Wow, you really do seem like the most helpful person when it comes to helping out with capilisation queries. I have what is probably a straight-forward answer, and just based on judgement. Hi Jonathan, thank you! In my opinion — yes, blinds certainly do provide economic benefits, because they simply enhance your or leased asset.
By installing new blinds, your office becomes more agreeable, personnel can work better etc. I would capitalize. Thanks for your answers, I was interested in how you go about setting a capex threshold policy. I realise that it is not worth capitalising light bulbs and wate paper bins because they are so small, but do you have any guidance on what this threshold should be based on?
I am happy for this to be relatively high so that it reduces management of the fixed asset register. Many thanks, Ian. It is judgemental and specific for every company. My company is buying a spare motor for a piece of equipment. We are only purchasing it because if the active motor fails, production would be shut down without a replacement.
Expense or Capital? If capital, when do I start depreciating, now or when it actually gets put into service? Hi J High, I have seen the similar case in one private clinic — they invested in the 2nd back-up electricity generator. So in the case the electricity is shut down for some reason, the clinic can use the 1st back-up generator and when that generator stops working, only then the clinic would use the 2nd generator in order to keep all the machines going.
Well, if you are a patient and you are making a choice where to go for surgery, which hospital would you chose? Therefore, they should be capitalised as an item of PPE. Just let me remind you that the pattern of depreciation does not necessarily need to be straight line, so for example, if you assume not using motor in the first 2 years and then installing it somewhere else, you might adjust your depreciation charges accordingly.
I have a similar query as J High above. We have some tower cranes which require motors and gears parts which are quite expensive. Currently, we treat such replacement as maintenance exp and show as inventory while in stock. Going through your above posts, I think it can be capitalized, since it has separate useful life and can be used for other cranes as well.
Can you please advise me on this. And, if we decide to capitalize hence forth, how the disclosure should be in the financials. Will it be treated as change in accounting policy and has to be disclosed with retrospective effect? Dear Abdul, I fully agree with your thoughts. Motors represent significant part of cranes and as a result, they should probably be treated as PPE, but depreciated separately from the rest of a crane.
And yes, it is a change in accounting policy rather than change in accounting estimate if not a correction of error. We have an operating lease of a building. I understand that these costs can be capitalized if this was an acquisition of a new building, but can these costs be capitalized if we are only doing construction on a leased building?
Thank you in advance for your help! I would like to confirm the date of depreciation start. We have purchsed car in May and it is available for use in may but it will not be use till July. I assume that depreciation should start in May. First of all, congratulation for your site which is a good source of information.
We are in the process of improvement power system for different locations. Therefore we will need to lease storage location just for this project with a limitation in time. Could the lease of the warehouse be capitalised under directly attributable costs?
Is the result the same if we use our actual warehouse? Today in our warehouse we have material towers that will be used in the future. Is it the correct allocation or can we consider them as WIP? From my point of view the biggest problem is to estimate the costs as we do not know for how long it will stay in the warehouse. Hi Silvia. In the pharmaceutical sector would it be possible to capitalise uniform that is used in a production environment as PPE. These are garments that have to be worn on the production line by operators to ensure hygiene standards etc and would have a useful life of years?
Hi Matt, why not? However, think about its value and unit of account — it might be more practical to capitalise some set of garments rather than each individual garment. Hi Arun, you should be able to allocate the expenditure either directly, or at least apportion it on a reasonable basis. If they could not be allocated to Assets not directly attributable , putting them to Profit and Loss while no revenue available would result with significant losses until Operating is started and revenue is generated.
This looks strange for me. Could you please share your thoughts? Hi Serik, well, but you should check out whether in this particular case, the standard IFRS 6 is applicable. This standard permits you to recognize certain expenditures as assets and you should be developing your own accounting policy for this purpose.
Thus I believe you can capitalize directly attributable expenses to evaluation and extraction of mineral resources to some extent. Other than that — unless it meets the definition of intangible asset or it can be deemed as directly attributable cost to an item of PPE, you should expense it in profit or loss. If a team requires to attend meetings and trvel aborad abroad for the project.
We have a land owned property around which we have got fencing built for safety purposes. The land is vacant and had already been capitalized in the books. I have two questions: 1 Is such fencing eligible for capitalization, or should it be expensed out? Silvia If we build a stage for a show. Only partitioning of woods are left is it ok to treat it as an item of PPE. Thanks but Silvia the stage does not exist. Please advise. Anjoo, in such a case, I guess the previous stage had some residual value as the partitions can be used further — therefore, there should have been something left.
Sure, you can use these partitions again, why not? As I said — after depreciating the previous stage, the residual value equal to the value of partitions should have been left in the carrying amount and that could have been used as the new cost. Can we capitalize costs for returning of pallets to vendor, which are carrying the purchased PPE? We import the PPE which is on pallets, but we have obligation to return the pallets to the vendor, and additional costs for transportation and forwarding occurs.
In our FAR we have printer, that is maintained by outsourcing company for a fee. The Co is offering us to replace the printer with new one for a reasonable surcharge. This option will probably decrease the maintenance fees, which are expensed in the PL. The old printer is still having net book value. What should be the accounting treatment for this issue? Write off the old printer and capitalize new with the price paid?
Do we capitalize brokerage fees in the cost of the land. Can you please share your viewpoint on this. A machine has been purchased by our company and also we got the consult from the outside for the installation of machine. Same Hotel fee has been incurred for the consulates when we got the consult. Can be capitalized the above mention Hotel fee for the consulates When Initial recognize of the machine?
I have a very specific question. I am auditing a company which deals in Serviced offices. They are launching a new location. All costs from during the setup until the property is in operation is carried as pre-opening cost. Once the new property starts operation, they will capitalize the rent expense of the preopening period as leasehold improvement. I feel they should expense it, but they dont. This has happened at every new location they have launched over the years.
It is big group. My firm has not raised an objection in the past audits. Could I get a reference to the IAS where it allows rent expense to be capitalized. And what is the rationale behind capitalizing it? Is it because the Company earns from renting out serviced offices, so it will gain future benefits from the property over the life of the property.
And without renting the property they would not be any future benefit. Limitations of capitalization of formation Expenses Prior year adjustments Thanking You. Thank you for your website. I learned a lot in reading your articles. May I ask questions please?
The lease contract is for a period of five years. Estimated useful life of the improvement is 14 years, is it okay to use this as the basis of depreciation, instead of the shorter between the lease term and the useful life?
Hi Benj, if you have the option for the renewal of the lease contract so noone can stop you from doing so and you intend to use it, then yes, you can set your useful life to 14 years. We are a manufacturing company.
Our Maintenance personnel are buying spare parts for our machines which usually fall on our capitalization policy. This spare parts will not be used right away and will be used only when there a damaged parts in the machines. Are we doing it right? Also, we have program modifications in the machines to accommodate new products or improvements. Can we capitalize this modifications? Is it additional cost of the machine?
We have purchased new production machine and classified as AUC. The acceptance test did not commence yet, since it is agreed in the purchase contract that the acceptance test will commence when the maximum capacity will be reached. If acceptance test be negative, we have right to return the machine to the vendor. Also, it is mentioned in the contract that, the titles and the ownership of the machine will be transferred to the byer us when all payments are settled.
Now, we started the production, we are selling produced products the machine started to bringing economic benefits but according to the contract we are not the owners of the machine yet. Should we reclassify the machine as final asset and start the depreciation or not yet? If we should capitalize as final assets in this moment prior to acceptance test , and start depreciation, should we provision the expected invoice and capitalize as provision, or the later received invoice should be posted as subsequent expenditure?
Its only that I could find clear and convincing answers from you for all the queries raised by different people. I am myself from a finance background and have a query w. I read in one of your comments that we should not capitalize the land lease. However, IAS 23 states the following:. Other borrowing costs are recognised as an expense. In the above query, land is required for construction of the building without which building cannot be constructed. And after construction is complete, the economic benefits from the building will flow to the company.
So, in a way, the land lease which was paid during construction of building qualifies all four conditions viz. Also, even the salaries paid to employees engaged in construction of building could be capitalized on the same grounds. Hi Sameer, thank you for your kind words. Let me just tell you that the rental expense is not a borrowing cost and therefore IAS 23 does not apply. And you are right, amounts charged under operating lease during the construction period can be seen as directly attributable.
I am looking at a particular case where an entity has constructed its own office building on a leashold land. Also will be be correct for company B NOT to amortize the cost since it has an indefinite life span and it can only remain in business if the license is in place?
Olesegun, I would say yes, most licenses meet the definition of an intangible asset. Good Informatics shared, First of all thanks for the same. What will be treatment of CWIP which is not available for use and not in actual possession of entity at the end of the year? Thanks in advance. I have a situation. The new premise is under an operating lease for 5 years.
Deposit 2. Space planning and project management 3. Moving furniture 4. Furniture — existing in the old premise and now moving to new premise. New furniture 7. Can you please advise:- 1. Which items can be capitalised and which are those which needs to be expensed? Is there some contract between parent and subsidiary? Is the parent going to use the premise as well? All other items can be capitalized. Thank you for your response. We want to keep track of all the fixed assets bought by the subsidiary as they are quite messy when handled by them.
My Question is, How to calculate the recharge to be made to the subsidiary and what will be the basis? I am conducting the audit of a textile mill. During the course of audit, i came to know that the stores and spares are kept in stores for more than one year and management view is that the stores and spares can be used even after three or four years.
My question is that if these stores are not used in the year then whether the company should capitalize it or it should remain as stores and spares? Hi Anwar, it indicates that you spares are a part of PPE as they can be used for more than 1 year. Hi Silvia, Our company intends to erect a fence 2 Km and share costs with a neighbour, a farmer. Or, just the company costs. Based on service potential and economic benefit, there is an argument for the full value or contribution but then increased depreciation need to be considered.
Any thoughts, please! Hi Suresh, it depends on the specific agreement with your neighbour. Can security expenses incurred during the construction of a building be capitalized? And what if the security was hired specifically for the construction, meaning there were other security there for the rest of the property. Hi Karen, I would say no. The reason is that the security service is not inevitable in order to bring the asset to its desired location and condition, is it?
But you would really need to fight hard to justify it. Hi Silvia, Thanks so much for your response. It is my client that wants to capitalize the security costs on the basis that the company operates in a volatile area and that the contractors requested extra security.
Now the premises already had security as there are other buildings on it, but it was thought that extra security was required and it is the cost of that additional service which he wants to capitalize. We agree that yes additional security would have reduced the pilferage on the site but argued that the building would have been erected whether or not there was this additional security so it was therefore an incidental cost per IAS 16 par. We even referred him to the paragraphs that give guidance to the elements of cost which are allowed to be capitalized but he still insists on his claim to capitalize the security costs.
I think he may have had a better argument if there were no other security on the premises. Karen, when I think about it closely it seems I would NOT capitalize any security cost in most circumstances. It would have really been an exceptional situation when an entity would have justified that these costs are absolutely inevitable for bringing an asset to its location and condition.
So I agree with you. Dear Silvia, our company reline the electrolysis pot shells each pot shell every 5th year. Costs of relining are capitalized. But there is filling inside each shell which is tapped to another shell or held as an inventory before overhaul. First filling of shells when production started was capitalized.
Filling after relining is not capitalized and is recorded as materials consumed costs. I would like to know, if the filling after relining should be capitalized or can be recognized as expense. Thank you in advance, Marta. I enjoy reading your replies, quite enlightening. I have a question about when depreciation should start. If a new production company acquires production equipments but production will only start 1 year later. Should depreciation start when PPE recorded even if idle or only when put to use?
We did some extension and renovations to our office premises which is owned by the organization. I am concerned about what to capitalize and what not to capitalized as everything is included in the invoices at each level of the project by the construction company. We also paid the quality surveyors huge amounts of money. Should the entire cost be capitalized? A new stove was fitted into one part of the extension.
Should the stove be capitalized or expensed? Should an alarm system installed in the office be capitalized or expensed. The cost was quite significant. I am not an IT person but I believe the Alarm could be reinstalled if we happen to move it to another location. And the cost of wiring the building for electricity? These are all cost incurred during the renovation of our office space.
According to IAS 16 para. Otherwise, such items are classified as inventory. Does it mean that even if the amount of spare parts is insignificant e. In fact, yes. Can I know how to record fixed assets furniture purchased infill the construction of a building is over. Priscilla, furniture can be seen as a separate piece of PPE in most cases. Dear Navaneethan, the only exception for capitalizing incorporation expenditures is when they relate to the acquisition of some asset like PPE, inventories or intangibles.
If not, then they must be expensed — for example, all salaries of employees working on incorporation, legal or consulting fees,etc. Even when they are significant. Hi Imran, thank you! No, that does not justify the capitalization of incorporation costs. The reason is that these costs do not meet one of the basic conditions for capitalizing intangible assets — they are NOT identifiable.
And, they are not identifiable because they are not separable you cannot detach this asset and sell it to someone else. Just as a quick comment. Thanks for all useful information. Would you be able to help me with the below? I am in the frieght industry and we have renewed a contract with an existing client. Hi Silvia, My company changed its name and will have to change the name on all their buildings. Should the cost of the new signs be capitalized? My client is building a wedding venue to rent out and is in the planning and construction phase.
Not yet operational. Can I capitalize the legal, feasibility study, and soil testing expenses prior to becoming operational, as part of the building and land costs? The only other expenses other than the land and building materials purchase is the website development cost and branding. Can I book these to goodwill intangible assets?
Or expense? I am on audit of Oil Refinery. Company has installed SBM first time in Pakistan, and purchase extra high tension rope as a spare parts to be used in emergency. Should I capitalize these ropes in PPE or classify it in Spare Parts and what will be the depreciation treatment in both cases?
Hi If I build a plant and I need to pay a lot of money for license agreements, lawyers and such, before I have the legal right to start the construction. What should I do with all those costs? Can I capitalize the insurance premiums and property tax payments on this property while construction is in progress.
I realize that it is expensed once the building is complete and ready for company use. Thanks for your help! Thank you very much for the conversation real i got something special to me. Thank you and have a nice day! In case of preoperative expenses which are incurred with respect to transportation for shifting machinery from a closed out factory to a new factory can be capitalized?
If yes then whether as an intangible asset or as a tangible asset as an addition to the cost of the machinery which is being shifted. Hi, i have a case for which the PPE office renovation had been completed 6 months back but the exact cost not provided by admin. How to capitalize in order to depreciate the 6 months back of an asset life being used before the year end? When we should capitalize the Spare parts in PPE, at the time of purchase or at the time when the part installed in machine.
Example we purchased in but installed in machine in Jan Best regards Pooran. Spare parts can capitalized at the time of when they purchased or at the time whey they installed in machine. For example purchased in and installed in machine in Jan Thanks and regards Pooran.
Hi Silvia, If existing assets have to be relocated to accommodate a new construction project and that is the only reason they are being relocated , can the relocation costs be capitalized to the project? Thank you, Brian.
See, Brian, you can capitalize all expenditures necessary to bring the asset to the desired condition and location, so I would say yes. How about lost sales due to temporary shutdown of facility in order upgrade and install new machines that will in effect increase capacity and improve quality f products? Would you consider capitalizing them as well? Because some clients require ISO certificates before they sign contracts with us.
So the economic benefits derives as a result of the certification. The cost is huge and one time cost. Right is something you own, where as privilege is something some else owns and they let you apply subject to certain conditions. But validity period of the certificate is 3 years. I would just like to ask if rent expense incurred during the construction period of leasehold improvement be capitalized.
Also, should the application fee and maintenance and security fees incurred for the construction of leasehold improvement, should they be capitalized also? Hi Cherry, in general no, this type of rent should not be capitalized, but it depends. Application fee maybe yes — depending on what it is, but maintenance and security fees are hard to justify for capitalization.
We purchased a machine in September. It was capitalized in September. We have an invoice for concrete and slab work to install the machine. Can these installation costs still be added to the machine even though the machine was capitalized 6 months ago. Can we capitalise legal fees for obtaining financing of a purchased land by a property developer? Can this machinery be included as an asset, i immediately thought yes, but got confused by IAS 16, para 19 that states that costs that do not form part of the cost of an item PPE being costs of opening a new facility.
Hi Can you please in deciding whether following expense can be capitalized or not : 1. Cost incurred for obtaining Environmental permits before construction of plant? Cost incurred for making Flood Risk Assessment of a plant before completion? Under software, can you capitalise expenses of travelling, meal, leasing a car to contractors directly attributable to the project that is being capexed.
Hi We have a product that we needed to improve according new global specifications, because of that we are considering that as a new product and due that able to capitalize. In this case can we also capitalize the Engineering hours? Hi Dominique, yes, you can, as soon as these engineering expenses are directly attributable to the product. I have a client who signed a lease agreement on a building.
He has been paying rental on this property for almost two years without taking physical occupation of the property. Kindly give guidance as to whether the rent paid can be claimed as an expense, if not how should I then deal with the rental income. Dear Abdur, it appears that the rent your client is paying does not meet a definition for capitalizing as an asset. Hi, I would capitalize the expenses for changing the roof see paragraph 13 of IAS If you change the roof on the leasehold property, you can still capitalize it and depreciate over the lease term.
Is my understanding correct? Two question please: 1 During a project phase when using moving machinery in order to create the asset, should the machinery be depreciated capitalised during the project phase? I have recently come across with your web site. This is located in some port zone. There has been a requirement where port authority has raised a one time compliance requirement to assess whole ship yard and their assets.
Dear Nirav, as I understand, you have to spend this money in order to continue the operation, right? In this case you can capitalize the expense for obligatory assessment to the cost of shipyard alocate in proportion.
I have a query — I am advertising to gather contractors for submission of tender on renovation of business outlet as it is a relatively large amount of business. Dear Cheong, you are perfectly right, the advertising cost cannot be capitalized. This is specifically written in the standard. However, I have seen that some companies capitalized procurement costs finding the cheapest and most suitable suppliers in line with the legislation — if the procurement process is required by the law, you would be able to justify its capitalization.
I have a large machine that is fully depreciated. The machine broke down and requires a major part not general maintenance to continue to operate. Can I depreciate the new part. Similiar to an engine or an overhaul. Hi Silvia, My question relates to a hydropower developing company under license from government. Whether land and general office equipment will also be treated intangible asset?
Please give your clarification. At what stage should we start amortizing them. Dear Silvia, Thank you for your great efforts , really your page helps me a lot I have a question related to the conversion from the phase of projects under construction to Fixed Assets the case is : we have finished the construction of a factory and we have bulk material : — Piping Bulk Pipes — Electrical Bulk Cables , … all these bulk material will be capitalized in the cost of the factory but how it will be recorded in the fixed assets register??
Case Study: I open a Dental Clinic on a rental space, it took like 4 months to build and during this I paid for 4 months rent Pre-commencement expenditure can I capitalized this 4 months rent cost separately or club with Leasehold improvement or Construction Cost? I think this article will answer your question. Yes, ask. But in general, as written in the article, you cannot capitalize them unless they can be attributed to an acquisition of a specific item of PPE or intangible asset or similar.
Interesting question, but in general yes, based on its purpose. Can I ask a question regarding PPE capitalization? I do have one question though. Now, something that maintains the earning capacity of an asset qualifies as revenue expenditure and hence should be written off. So by this definition , should we book the new purchase as expense?
Or if we book the amount as asset, what amount should be derecognitized for the part that was disposed? Dear Student, the recognition criteria in IAS 16 say that you should recognize a subsequent expenditure as an asset when the cost is reliable measurable and there are future economic benefits IAS Moreover, when a replacement of a certain part is required in regular intervals, then you should recognize it and depreciate separately.
Long story short — you should recognize a new part and depreciate it over its useful life. Dear Sir, Thank you for your answer. I shall be grateful if you could kindly answer some of the questions that have popped up after reading your earlier response. Can I book the lease negotiation fee as the leasehold improvement?
The useful life is same as the lease term, is that correct? Dear Kayla, some of these fees can be considered as directly attributable costs of acquiring the asset, but not as leasehold improvement. It depends what the fee was paid for. Thank you Silvia for all your help. Need a solution to a proble, in relation to capitalisation of expenses. A company purchased storage boxes for the office. And will last or 10 years. Can its cost be capitalised?
Hi Micheal, there is no minimal value for capitalization. So yes, you can capitalize the cost as the purpose and duration is in line with IAS 16 and its definition of property, plant and equipment. However, think of materiality and aggregation — is USD material for your financial statements? I have an asset and some depreciation have charged in it. I want to transfer this asset to CWIP project for employees training.
In this case, What would be the treatment. We are in the process of a new project, the building of a new filling plant, and we have hire charges for construction machinery. The hire period is no longer than 1 week overall — are these to be expensed? Dear Ashleigh, you can capitalize these rental charges, because they were incurred directly in connection with acquisition of a new filling plant. Serene Plantation Bhd commenced plantation operations in Bukit Serendah. The operations, which start on 1 January , are for the cultivation of oil palm.
The following information summarizes the costs incurred in relation to the plantation areas:. Hi Tyraa, n. The whole project for construction of solar farm ends within the same financial year end. The company has purchased an accounting software.
Under the norm, this should be capitalized as Fixed Assets. However, the directors advised to expense it off since the project has completed and the item will not carry any economic future benefit. Is this practical? Hi Omeldo, from what you wrote it seems that yes, it would be OK to expense the software in the financial statements, because no future economic benefits are expected.
You can classify it as some project cost based on whether you present expenses by nature or by function. But, let me warn you about the deferred tax, because in most cases, the tax rules do not permit you to expense the software in 1 year if its cost is higher than certain amount , and therefore, deferred tax may arise. Hi Silvia During the course of the construction of a building, let say one of the contractors is fired.
Should the amount paid as damages to the contractor for breach of contract be capitalized in the cost of the building? I think not. Hi Sylvia, I would like to know that how would you treat the cost of moving the assets from one place to another and where would you allocate the cost of moving, to the actual asset moved or what?
Dear Nompilo, you cannot capitalize asset relocation costs — please refer to IAS Hi Sylvia, What about royalty payment to the supplier? Can we capitalized it as cost of PPE? Hi Kalani, interesting question. Is this royalty payment just one-off? Or, is it for the continuing use of the asset? Hi Silvia, If I pay compensation equivalents to 3-years rental,to the existing tenant before I take possession of the premise that I bought, can I capitalise the compensation made?
Thank you! Thank you for your wonderful and exciting effort. Problem — 1: We have a CAPEX vendor for telecommunication equipment and vendor use a warehouse run by himself that cost they included with equipment price. Currently we have decided to cancel the contract and vendor asking for the warehouse rent as they were used the warehouse for our equipment only.
Can we do the warehouse rent as a capex as some of the procured equipment still in WIP stage? Problem We have changed our equipment vendor. When we cancel the contract we found some order is on progress then we cancel the order. Now vendor ask plenty for PO cancelation. Can we do the plenty cost capitalization with new vendor provided equipment cost?
If not what would be the accounting? IAS 16 state that you should recognise a PPE if and only if 1 it is probable that future economic benefits will flow to the entity. In these scenario:- Co. Can they capitalise the amount paid at each milestone reached by the supplier of completion as PPE?
Dear Andy, it all depends on terms of a contract. Who controls a machinery in progress? Is that supplier or customer? Who bears the risks of ownership? If you assess that the control is with supplier, then you should account only for prepayments made. If a company is engaged in housing development, is land recorded as inventory or PPE.
Also, can expenses such as valuation , infrastructure be added to the value of the land? This would involve putting partitions up, rearranging the office layout and purchasing new furniture. Great to be at this forum. Independently it should not be considered as fixed asset. Randesh, thanks for answering your question. In general, I agree, you can capitalize consultancy work.
It all depends on what the legal requirements are, why the study was done, etc. Thanks a lot for your support on IFRS learning and clearing issues. I have one issue with our software — accounting package. For a long time the asset which is classified under intangible assets is kept at zero NRV. How I should deal with this balance in future? Can I re-classify it to PPE or offset the cost with the accumulated amortization or revalue it.
Anyway the asset has no much value since the license in not compatible with the new operating systems. You can read more about it here. If we capitalized raw materials purchased for the purpose of testing a new machine. How should we treat this raw materials if we sold the Finished Goods which consumed this raw materials? This explanation of IAS 16 is very useful, Request you to throw some light on period as mentioned in Para The amount of the invoice is measured in relation the the revenues that related party achieves during the year.
Can we capitalize the advertising expenses which have been incurred for a launch of new product in a new company? At the initial stage high cost will be incurred to promote the brand for a new product. Please advise how to account for this particular situation…. These costs however relate to property, plant and equipment in use already depreciated. Should the company leave these costs as works under construction or treat them as subsequent costs? The Company believes these are works under construction since subsequent costs need a while to be ready for use.
Kind regards! A Company constructed a sugar mill, after completion, they put the asset to test run the asset and in this process, they produced sugar and by-product Molasses. Should the proceeds from selling the produce credited to the cost of the asset or the cost of producing and the proceeds together? Dear Olatayo, good question. The standard says that you should include the cost of testing LESS net proceeds from selling of items produced when testing. Now, what happens if the cost of testing is less than the net sales proceeds of items produced?
In my opinion, it would be OK to recognize the excess of the net proceeds over cost of testing in profit or loss that is, no deduction from the asset. Hi Silvia, thank you a lot for your sites. Any proceeds received from selling items made during such testing should be credited to profit or loss IAS para. Hi Mira, you can capitalize if you believe you will renew the licenses after 1 year and you will have the right to do so , but you still need to amortize the full amount paid for 1 year in profit or loss.
Currently the expenses are being parked in Capital WIP account. The project costs will be incurred for another We have a project manager who is exclusively for this recycling project. He is involved in coordination with different vendors, purchase of machinery, overall management of project till its completed.
If Yes, how do we eventually allocate this cost for capitalization to different assets like factory building, Machinery etc. Thanks But what about software that is vital to the operating profits of the company such as software used for Branchless Banking. Sana, software is software — an intangible asset. Does it? IFRS categorizes most of its software as intangibles, but when the software is integral and inevitable to operate hardware like operating system , then it is a part of PPE.
UBS is unique amongst banks in this respect. This makes a difference, by the way, as banks have their intangibles but not their PPE deducted from regulatory capital. Car used for director, can it be capitalized as a asset as it does not derive any direct economic benefit. In fact, crypto arbitrage is central to the overall uniformity of the crypto market. Whenever there are price differentials across multiple exchanges, the trading activities of crypto arbitrageurs will eventually cause the prices of the digital asset across exchanges to converge.
There are several types of arbitrage activity. Here, we will highlight those most popular amongst crypto traders:. There is also the option of using bots designed to automate and optimize crypto arbitrage trading. These tools, combined with market inefficiencies trackers, are recommended for crypto arbitrageurs. A crypto arbitrage bot is a computer program that compares prices across exchanges and make automated trades to take advantage of price discrepancies.
Moreover, if you are looking to transfer funds between two exchanges, ensure that you stick to cryptocurrencies with high transaction speeds. Therefore, an arbitrageur would not be advised to transfer Bitcoin from one exchange to another, especially during times of high network congestion. Another factor you should keep in mind is potential transaction fees. To mitigate the impact of high transaction fees, you can deposit sufficient holdings of crypto assets on multiple exchanges at once.
Then, whenever you want to seize on a crypto arbitrage opportunity, you can reshuffle your portfolio in such a way that allows you to capitalize on the opportunity. In this way, the trader has bypassed any deposit and withdrawal fees, as well as saving the time it takes to process inter-exchange transactions. The only thing such a trader needs to worry about are maker and taker fees, which are however rather low for high-volume traders.
Note that crypto arbitrageurs almost always have to execute large trades in order to be able to generate significant profits from a single arbitrage opportunity. A last note on crypto arbitrage: keep in mind the risks associated with hot wallets. Crypto arbitrageurs are very much exposed to these risks because they are required to hold crypto assets in wallets provided by cryptocurrency exchanges. Keeping to the above basic crypto arbitrage best practices and measures should help you to make the most of the multiple arbitrage opportunities out there in the crypto market today.
CoinMarketCap News. How to Benefit From Crypto Arbitrage. Table of Contents. What Is Arbitrage? By Andrey Sergeenkov. Created 11mo ago, last updated 7mo ago. Table of Contents What Is Arbitrage? What Is Crypto Arbitrage? Is Crypto Arbitrage Legal? According to Investopedia , arbitrage "describes the act of buying a security in one market and simultaneously selling it in another market at a higher price" to profit off the price difference. Traders have engaged in arbitrage long before the emergence of the crypto market.
At its most basic, arbitrage means that a trader capitalizes on the non-uniformity of the price of an asset across multiple markets. In essence, if the price of asset x is different on two different exchanges, a trader can buy the asset on one exchange at a cheaper rate and sell it on the other platform at a slightly higher price. Just like traditional arbitrage, crypto arbitrage is the process of capitalizing on the low correlation in the prices of crypto assets across two or more exchanges.
Crypto exchanges continually update the official price of a given crypto asset according to the most recent price at which the asset has been bought or sold on their platforms. Therefore, depending on the supply and demand of a given digital asset at a specific moment, the prices of cryptocurrencies across multiple markets may differ.
Hence, this results in crypto arbitrage opportunities that enterprising traders look to exploit. When engaging in crypto arbitrage, the first thing you should keep in mind is that you are trading in a very volatile market. Therefore, you should do whatever it takes to optimize the speed of your trades before your window of opportunity to make a profit closes.
I guess Bitcoin is a cryptocurrency concept as well as a currency, so it's a proper noun AND an ordinary noun.: Bitcoin is a digital currency. As a concept. According to the official Bitcoin glossary, Bitcoin is capitalized “when describing the concept of Bitcoin, or the entire network itself” but. Capitalize when referring to Bitcoin and other currencies as a system, but lowercase when referring to their use as payment: The government wants to.