Machinery

 Cost of Machinery
-Purchase Price
-freight
-Insurance while in transit
-Installation Cost
-Cost of Test and Run
-Initial Estimate of dismantling Cost
-Fee paid to consultant

 Capital Expenditure Vs. Revenue Expenditure

Expenditure that benefits only the current period is revenue expenditure and therefore
reported as EXPENSE

Expenditure that benefits the current and future periods is Capital Expenditure and therefore
Reported as an ASSET.

 Subsequent Cost
If the subsequent cost will increase the future service potential of an asset, the cost should be
capitalized.

*The Benefit future increase or the future service potential of an asset, when expenditure
extends the life of the property, increases the capacity and improves the efficiency and safety of
property.

If the subsequent cost merely maintains the existing level of performance, the cost should be
expensed when incurred.

*Subsequent Cost generally incurred during ownership of existing property:

1. Addition
2. Improvements or betterments
3. Replacement
4. Repairs
5.Rearrangement Cost

 Accounting for major replacement

*If the original part of an existing asset is separately identifiable,
The major replacement is debited to the asset account.

The cost of the part eliminated and the related accumulated depreciation are removed from the
accounts and the remaining carrying amount of the old part is treated as loss.
*If it is not practicable for an entity to determine the carrying amount of the replaced part, it
may use the cost of the replacement as an indication of most likely original cost of the replaced
part at the time acquired or constructed. The current replacement cost shall be discounted.