[Anonymous]

If my company decides to capitalize an item that cost $500 with an installation cost of $1,000 for a total cost of $1,500, is this considered overvaluing the asset? I know that the cost to get the item into service should be the cost to capitalize but is there any discretion when the installation is twice as much as the asset?

[M.O.D.]

I think the answer is correct. The proportion has nothing to do with the original asset cost. For example, rearranging an assembly line is capitalized and there is no asset purchased.

BA Mathematics, UC Berkeley
Certificates in CPA and EA preparation, College of San Mateo
CMA I 420, II 470
FAR 91, AUD Feb 2015 (Gleim self-study)

[How many letters do you need]

Agreed. Proportion makes no difference. It's unusual for sure, and in the real world I would retain back up and a thorough inquisition of the department head to be sure they aren't trying to tack on new furniture or something but if it's legit it's capital.

MBA,CMA,CPA, CFF?, ABV?

[Anonymous]

Thanks! I have another one that I need an opinion on. Company A goes underground and repairs a water leak that originates from Company B. Can the cost be capitalized by Company A? I believe it can be done in the construction phase but not sure after the company has been operating.

[M.O.D.]

Repairs cannot be capitalized, period.

If it is building a foundation, yes.

BA Mathematics, UC Berkeley
Certificates in CPA and EA preparation, College of San Mateo
CMA I 420, II 470
FAR 91, AUD Feb 2015 (Gleim self-study)

[mla1169]

Repairs actually can be capitalized IF they extend the useful life of an asset OR they give the asset some functionality it didn't already have.

It doesn't sound like the situation above meets either of those criteria, so no.

FAR- 77
AUD -49, 71, 84
REG -56,75!
BEC -75

Massachusetts CPA (non reporting) since 3/12.

[Author]

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