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Capitalize or Expense out?
04-14-2011, 08:22 PM,
Paragraph 12, 13 and 14 of IAS-16 deal with the subsequent costs incurred on an item of PPE. Paragraph 13 interalia states


Under the recognition principle in paragraph 7, an entity recognises in the carrying amount of an item of property, plant and equipment the cost of replacing part of such an item when that cost is incurred if the recognition criteria are met. The carrying amount of those parts that are replaced is derecognised in accordance with the derecognition provisions of this Standard (see paragraphs 67–72).


Given the materiality of the LCD replacement value compared to total Laptop cost, it can be capitalized considering that without such a replacement laptop was not even capable for usage; BUT for doing so, the condition is to DERECOGNIZE the replaced broken LCD. Without derecognizing the broken LCD the new one cannot be capitalized.

If the carrying amount of broken LCD is not available, then such an adjustment would be “impracticable” and the only solution will be to expense out the cost of new LCD as a repair and maintenance expense. What “impracticable” means has been defined in paragraph 7 of IAS-1 as -,

“Applying a requirement is impracticable when the entity cannot
apply it after making every reasonable effort to do so.”

Presumably it was the first year of laptop’s operation, therefore, expensing out of the LCD will not leave any material distorting impact on the results of the entity as well.


Messages In This Thread
Capitalize or Expense out? - by human - 03-07-2011, 02:06 PM
[No subject] - by danishayub_76 - 03-07-2011, 02:44 PM
[No subject] - by bilalfca - 03-16-2011, 02:27 AM
[No subject] - by Farooq.authorities - 03-17-2011, 09:07 PM
[No subject] - by bilalfca - 04-12-2011, 03:19 AM
[No subject] - by noor4794 - 04-13-2011, 08:50 PM
[No subject] - by Dard - 04-14-2011, 12:37 AM
[No subject] - by basit_namdar - 04-14-2011, 01:58 AM
[No subject] - by Dard - 04-14-2011, 02:51 AM
[No subject] - by basit_namdar - 04-14-2011, 03:01 AM
[No subject] - by basit_namdar - 04-14-2011, 03:09 AM
[No subject] - by bilalfca - 04-14-2011, 05:34 AM
[No subject] - by kamranACA - 04-14-2011, 08:22 PM

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