E T B I C MBA AGU

Repairs to second hand machine

when a second hand asset is purchased and is repaired before bringing it in use then repair charges are debited to asset account and not to repair account.why is it so?

asked Sep 1, 2015 in Depreciation, Provisions and Reserves. by kajol kumari (22 points) 91 views

1 Answer

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When a second hand machine which is not in a working condition is bought, it needs some repairs to be carried out on that to bring the machine to the working condition.  So we can say that unless these repair expenses are incurred, the second hand machine cannot be put to use.  So we can say that  these reapirs add to the value of the machine   This is the reason why we treat these repair expenses as capital expenditure, and are debited to the machine account.

     Once this machine starts running, all the expenses incurred on its repair to keep it in running condition are of revenue nature, hence are not debited to machine account.
answered Sep 1, 2015 by jbsclasses (3,963 points)
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