Steve Collings looks at a common question that frequently causes confusion amongst accountants; that of the capital versus revenue debate.
When is it appropriate to recognise expenditure on an existing fixed asset in the balance sheet and when should it be written off to profit and loss?
In financial reporting terms, this cost is referred to as ‘subsequent expenditure’. This issue is clarified in FRS 15 ‘Tangible Fixed Assets’ and in paragraph 6.22 of FRSSE (effective April 2008), as well as in IAS 16 ‘Property, Plant and Equipment’. This article concerns the provisions in FRS 15, although the FRSSE equivalent is a condensed version of FRS 15.
What is an asset?
In order for an asset to be recognised on a reporting entity’s bal...