Can I Depreciate Major Equipment Repair

Bookkeeping for Repair and Maintenance

Repair and Maintenance is the amount that a company spends to restore the condition of the fixed assets. The company spends this cost to restore avails to the previous condition or go along the nowadays condition over a longer period of time.

In business, repair and maintenance are very common as long as the entity owns the fixed avails. Those avails will not work in the best status forever. At some points, they will brokedown and require repair. Some other assets may require regular maintenance in club to operate properly.

In accounting, both types of repairs are treated separately based on their nature. Not all repairs are treated every bit. Repair and Maintenance can be classified equally the company operating expense or capitalize every bit the avails and depreciate over time.

Repair and Maintenance Expense

Normal repair and maintenance expense that incurs regularly is classified every bit the operating expense. Information technology is the expense which not bring any improvement to the assets, but only to keep the assets at the current land over long term. The visitor needs to spend on repair and maintenance expenses to proceed the assets operating in optimal condition. Some assets require regular maintenance to keep operating at the optimal level.

Repair and maintenance expenses are necessary for the assets and they incur on a regular basis. Without them, the avails such as machinery volition not piece of work properly in the current status.

Example of Repair and Maintenance Expenses

Building Painting
Car regular maintenance such equally oil and some accessory
Change Machinery oil
Air Con cleaning
Repair Cleaved piping of the edifice

Accounting for Repair & Maintenance Expense

Repair and maintenance expense is recorded every bit the operating expense base on accrued basic. The journal entry should be debiting repair and maintenance expenses and credit accounts payable or cash.

Account	Debit	Credit
Repair and Maintenance Expense	000
Accounts Payable/Cash		000

This transaction will bear on both income statement and residuum canvass. Repair and maintenance expenses will be present on income statement and reduce the company turn a profit. Accounts payable is the company obligation to pay the supplier in the next menstruation. If the company pays cash immediately, it will be deducted from the residual sheet.

Repair & Maintenance Expense Journal Entry Example

ABC is a consulting visitor that provides bookkeeping services to other entities. During the month of November, the company spends $ 5,000 on the diverse expense which includes:

Taxi for staffs $ 200
Utilities expense $ two,000
Repair window function $ 800
Modify company tire $ 100
Alter office lock $ 100
Pay for internet service $ 500
Other petty greenbacks expense $ i,300

Please check if any expenses related to repair and maintenance expenses.

Based on the expenses list above, at that place are three items related to repair and maintenance expenses. They include:

Repair window office $ 800
Alter company motorcar tire $ 100
Change office lock $ 1000

These expenses demand to tape as R&R expenses in the income statement.

The periodical entry is debit R&R expense of $ 1,000 and credit cash with the aforementioned amount.

Account	Debit	Credit
Repair and Maintenance Expense	1,000
Greenbacks		1,000

The repair and maintenance will exist present in the income argument while cash is deducted from the balance sheet.

Capitalized Repair and maintenance

Any repair and maintenance expense that increases the avails' useful life or product capacity will be capitalized into the assets. Information technology is the major repair that necessary to achieve otherwise assets will not be able to employ.

Some assets are broken due to the accident so they are unable to operate. Nonetheless, the company can spend some money to repair the assets and bring them back to life. Without such kind of repair, the assets will not be able to use and crave write-off.

Some avails are reaching the stop of useful life, withal, repair and maintenance can extend the useful life beyond the original useful life. The repair cost may exist lower than purchasing new assets and then the company prefers to do so.

Moreover, the repair and maintenance tin can increase the asset'southward chapters to a higher place the normal capacity.

These are the repair and maintenance which need to capitalize as the assets and calculate depreciation. Such kind of repair and maintenance normally take a high price if compare to expenses.

Example

The repair and maintenance may require to capitalize as fixed assets if they fall nether the following:

Renovate a floor to modify it from office to warehouse.
Add pool to the edifice roof
Replace pipe system of the building
Overhaul the machinery to increase its useful life
Repair the automobile after the accident

Accounting for Capitalized Repair & Maintenance

The capitalized repair and maintenance must exist classified as the assets or part of the fixed nugget in the residuum canvas. The rest of capitalized repair must be depreciated over the assets remaining useful life.

Initial recording of capitalized repair and maintenance

Business relationship	Debit	Credit
Fixed Assets	000
Accounts Payable		000

Subsequent measurement of capitalized repair and maintenance

Account	Debit	Credit
Depreciation Expenses	000
Accumulated Depreciation		000

Capitalized Repair and Maintenance Example

XYZ is a construction company that provides construction services to a multifariousness of company. In January, company spend $ 20,000 to repair broken machinery and bring it back to life. Management estimate that it will increase the machinery life by 4 years. Please brand a journal entry for this transaction.

This is a repair and maintenance that company spends to bring back the old broken machinery. It volition increase the useful life for 4 years. So it should be capitalized as the assets.

The journal entry is debiting stock-still asset $ 20,000 and credit cash.

Business relationship	Debit	Credit
Stock-still Assets	20,000
Cash		20,000

It will increase the stock-still nugget on balance sheet while decreasing the cash.

At the end of the first twelvemonth, this fixed asset needs to depreciate based on the useful life.

Depreciation expense = $ 20,000/iv years = $ 5,000 per year

The journal is the same as normal depreciation, it debits depreciation expense and credit accumulated depreciation.

Business relationship	Debit	Credit
Depreciation Expenses	v,000
Accumulated Depreciation		5,000

Repair and Maintenance Expenses Vs Capitalized repair and maintenance

Repair and Maintenance Expenses	Capitalized repair and maintenance
The purpose is to keep assets operating at the optimal level. The visitor repairs the assets to proceed them operate and it has nothing to do with the assets' useful life.	The purpose is to restore avails' value, increase the useful life, and increase the capacity.
Occur on a regular basic such as monthly, quarterly, or annual. It has nothing to practice with increasing assets' quality or restoring whatsoever significant damage.	But happen when assets reach a certain condition or management wishes to increment assets' original capacity.
The benefit generated from the cost incurred volition non last more than 12 months. Every bit it is a normal repair, it will not last whatever long fourth dimension.	The benefit from cost will last more than 12 months.
Record as expense in the income argument.	Record as assets or part of assets in the rest sheet.

FAQ

Is there any other example of repair and maintenance?

There are hundreds if not thousands of examples that we are not mentioning here. Most fixed assets tin be repaired, and then they are examples.

What is the impact of the wrong classification of repair and maintenance?

Equally nosotros already know that repair tin can be the expense on income statement or the assets on residue sheet. If accountants practise not classify them correctly, information technology will have a significant impact on the financial statement.

If repairs are wrongly classified as expenses, it will reduce the visitor profit and understate the visitor assets.

On the other hand, if they are wrongly classified as avails, information technology will increment the visitor profit every bit the expense is understated. At the same time, it likewise overstates the company assets. This is a critical part that most auditors and reviewers need to pay attention to. Near companies try to brand their fiscal statements look meliorate than they actually are.

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