Fixed Asset Purchase Entries Rules

Entries for Assets are similar to entries for expense as shown below

Fixed Assets means those assets which are used for more than 1 year

Example :-Machine,Building.Plant and Machinery etc)

What is the Amount to be Capitalized

Apart from Purchase Price,all expenses of bringing asset to working condition are capitalized

i.e. included in the value of Asset

(Example-Installation Charges,Freight Charges/Accessories etc paid on purchase of asset is put in Asset A/c)

Treatment of Subsequent Expenditure on Asset after Installation

It increases efficiency or performance beyond previous level

CapItalized (Put in Asset A/c)

Example:-New floor constructed in House 

It maintains efficiency up to previous level

Not Capitalized (But in Repair and Maintenance A/c)

Example::- Whitewash done in House