True or False: The Cost Of Repairing Damage To A Machine Or Equipment During The Installation Is Debited To A Fixed Asset Account.

The Cost Of Repairing Damage To A Machine Or Equipment During The Installation Is Treated As A Capital Expenditure Or A Revenue Expenditure

The answer is “False”, as the cost of repairing damage to a machine or equipment during the installation is charged to Profit And Loss Account rather than it is added to the cost of machine / equipment according to IAS 16.12. The cost is not debited or added to machine or equipment account as the machine or equipment is in the location and condition necessary for operating in the same manner as intended by the management. Also, it is a repair expense (Revenue Expenditure) during day to day working, so it does not enhance / increase the cost of machine or equipment as it is not a Capital Expenditure.

Initially, the machine / equipment is recorded at cost and all the necessary costs incurred to bring the machine into working condition for its intended use are added to the costs of machine or equipment, otherwise, charged to profit and loss account.