A. Conditions for capitalization of subsequent expenditures on fixed assets

Article 6 of "Accounting Standards for Business Enterprises No. 4 - Fixed Assets" stipulates that enterprises and Subsequent expenditures related to fixed assets that meet the recognition conditions for fixed assets shall be included in the cost of fixed assets, and those that do not meet the recognition conditions shall be included in the current profits and losses when incurred. At the same time, it is stipulated that if subsequent expenditures are an important component of fixed assets, the subsequent expenditures shall be separately valued and depreciated based on the expected subsequent useful life of the fixed assets; if subsequent expenditures are not an important component of fixed assets, subsequent expenditures shall be included with the fixed assets. Valuation, recalculation of useful life, and provision of depreciation.

B. Recognition conditions for subsequent expenditures that can be capitalized on fixed assets

The biggest difference between expensed expenditures and capitalized expenditures is whether the expenditures increase by fixed If the book value of an asset cannot be increased, it is an expense, and if it can be increased, it is a capital expenditure.

For example, in terms of repair costs, if they are minor repairs, routine maintenance, etc., they will not increase the value of fixed assets, so they are usually treated as expenses, while major repairs, replacement of major components, etc. If the value and useful life of fixed assets will be significantly increased, they are usually capitalized, and at least long-term deferred expenses must be recorded.

C. If the subsequent expenditure on fixed assets meets the capitalization conditions, if there is a replaced part of the asset, the capitalized subsequent expenditure:

Fixed When assets are transferred to reconstruction and expansion:

Debit: Accumulated depreciation of projects under construction

Credit: Fixed assets

Fixed assets are reconstructed and expanded until they are ready for intended use Status:

Debit: fixed assets

Credit: construction in progress

Expenditure expenditure:

Debit: administrative expenses (enterprise Production workshop and administrative management workshop) sales expenses (dedicated sales agency)

Credit: raw materials/employee salary payable/bank deposits, etc.

(3) Subsequent expenditures on fixed assets are in line with capitalization Extended reading of conditions:

The cycle period of fixed funds is relatively long. It does not depend on the production cycle of the product, but on the service life of the fixed assets.

The value compensation and physical renewal of fixed funds are carried out separately. The former is gradually completed with the depreciation of fixed assets, and the latter is used when the fixed assets cannot be used or are not suitable for use. to achieve.

When purchasing and constructing fixed assets, a considerable amount of monetary funds needs to be paid. This investment is one-time, but the recovery of the investment is carried out through the depreciation of fixed assets in installments.

D. Which items should be capitalized among the subsequent expenditure items on fixed assets

If the subsequent expenditure on fixed assets causes the economic benefits that may flow into the enterprise to exceed the original estimate, Then it should be capitalized and included in the book value of the fixed asset, but the added amount should not exceed the recoverable amount of the fixed asset. In other cases, subsequent expenditures should be included in the current profit and loss when incurred.

The situations that can be capitalized are as follows:

(1) Fixed asset improvement expenditures should be included in the book value of the fixed assets, and the added amount should not exceed the fixed asset’s Recoverable amount; the part after the increase exceeds the recoverable amount of the fixed asset shall be directly included in the non-operating expenses of the current period.

(2) If the repair or improvement of fixed assets cannot be distinguished, or repair and improvement are combined, the relevant expenditures shall be expensed or capitalized.

(3) Fixed asset decoration costs, if they meet the capitalization conditions, should be recognized as fixed assets, and a reasonable amount should be used during the shorter of the two decoration periods and the remaining useful life of the fixed assets. method to calculate depreciation separately. During the next renovation, the balance of the original capitalized renovation costs minus the relevant depreciation will be fully included in the non-operating expenses of the current period.

(4) Subsequent expenditures on fixed assets incurred by leasing fixed assets through financial leasing shall be handled in accordance with the above principles. For renovation costs that meet the capitalization conditions, depreciation should be separately accrued using reasonable methods during the shorter of the two renovation periods, the remaining lease period and the remaining useful life of the fixed assets.

(5) Improvement expenditures incurred when renting fixed assets under operating leases should be capitalized, and a reasonable method should be adopted during the shorter of the remaining lease term and the remaining useful life of the leased assets. Depreciation is calculated separately.

E. What are the capitalizable subsequent expenditures incurred on fixed assets?

1. The subsequent expenditures on fixed assets refer to the renovation expenditures and repair costs incurred during the use of fixed assets. Wait for return.

2. After an enterprise's fixed assets are put into use, in order to adapt to the needs of the development of new technologies, or to maintain or improve the efficiency of the fixed assets, it is often necessary to maintain and reconstruct the existing fixed assets. , expansion or improvement.