Question

There are costs specific for the recognition of PPE, how to identify
these costs and those that are not capitalizable as part of the PPE, which should be expensed immediately?

Answer 1

PPE stands for property, plant and equipment and these are long-term fixed asset expenditure. Whenever a new capital expenditure in made in the property, plant or equipment, at the time of purchase of these machineries there are certain cost which are capitalized such as installation cost, training of personnel and other direct cost which benefit will accrue in more than one year, those cost are capitalized. Normally under the accounting standard, the benefit of the expenditure which is going to accrue for more than a year is capitalized and written off over the life of the use of the asset and the expenditure whose benefit accrue in the same year is written off as an expenditure in the same year. For example, the annual maintenance cost of the machinery is taken as expenditure or as an expense not a capitalized asset however there can be exception also in certain industry but normally when the benefit is more than a year it is capitalized and if it is for a year it is taken to the profit and loss statement as an expenditure.