What is Costs after acquisition (additions, improvements and repairs)?
In short
Costs incurred on property, plant and equipment after it is acquired are capitalized if they extend its useful life, increase its capacity or efficiency, or improve the quality of its output. Ordinary repairs and maintenance are expensed.
Key takeaways
- Additions, such as a new wing, are capitalized as new assets.
- When a component is replaced, the old component's carrying amount is removed and the cost of the new one capitalized.
- Rearrangement and relocation costs are capitalized only if they bring a material future benefit.
Where it's tested
FAR: Property, Plant & Equipment — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
Under US GAAP, a long-lived asset held for use is tested for impairment. The carrying value is $500,000, undiscounted future net cash flows are $520,000, and fair value is $460,000. What impairment loss, if any, should be recognized?