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Writing off part of capitalised works

Kitchen, restaurant were refurbished few years ago, the restaurant now closed, can part be disposed

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Question on depreciation and disposal.

Can we write off part of refurbishment costs if part of the fixed asset is no longer in use and being replaced? Is so, which statement supports it.

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RLI
By lionofludesch
19th Jun 2021 11:32

You're saying that the value of the asset is impaired ?

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By Dainty Dee
19th Jun 2021 14:13

Hello,
Basically yes, because the restaurant is now closed and the part of the premises used for the restaurant is to be refurbished and used for something else, like staff lounge. There is no tax implication here as the company is a charity and pays no tax.

Regards

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By Dainty Dee
19th Jun 2021 14:26

Hi,

Following on from my question on writing off part of capitalised works, why should the auditors challenge why we are writing off a proportion of the capitalisation? Any answers?

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Replying to Dainty Dee:
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By David Ex
19th Jun 2021 17:41

Dainty Dee wrote:

Following on from my question on writing off part of capitalised works, why should the auditors challenge why we are writing off a proportion of the capitalisation? Any answers?

Surely you have answered your own question when you say: "part of the fixed asset is no longer in use and being replaced" and "the restaurant is now closed and the part of the premises used for the restaurant is to be refurbished".

Irrespective of the position now, when the asset is replaced, it has effectively been written off.

I'd be surprised if the auditors objected.

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By Dainty Dee
19th Jun 2021 18:08

Thanks very much David Ex.

The auditors are trying to challenge the write off and questioning the justification, which is so obvious. They're querying it, I suppose, because the same part of the building is being made up for different use rather then an item being physically removed and disposed of. I'm baffled and trying to find a gentle and professional answer to insist on the write off. leaving that value on the balance sheet and adding to it for the new use is just inflating the reserves and giving a misleading view of FA funds.

Dainty D

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Replying to Dainty Dee:
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By Hugo Fair
19th Jun 2021 19:07

In your OP you asked "Can we write off part of refurbishment costs if part of the fixed asset is no longer in use and being replaced?"
Note the use of the word 'part' in two places.

Now you say "the same part of the building is being made up for different use rather then an item being physically removed and disposed of" ... so which, if any, elements of the original fixed asset ARE being removed/disposed?

I'm no expert in this area, but there's a world of difference between an asset being used for a different purpose and it being sold (or even thrown away).

At the end of the day, instead of 'supposing' why the auditors are querying your position you'd be better off asking them direct for an explanation.

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By Bobbo
21st Jun 2021 08:29

I think more attention needs to be paid to the final word of lion's comment.

If whatever the physical result of those capitalised costs was is being removed from the building and chucked in a skip then a disposal should be recorded.

However, what you seem to be saying is that the physical result of those capitalised costs (I phrase it this way as you do not appear to have clarified exactly what these costs are) is still present in the building but, due do a change in use, the result of those costs is not being used to its full purpose.

In such a circumstance you should refer to section 27 of FRS 102 'Impairment of Assets' to determine if there is an indicator of impairment.

In short you cannot 'dispose' of something you still have, but you can impair it.

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Replying to Bobbo:
RLI
By lionofludesch
21st Jun 2021 08:47

Bobbo wrote:

In short you cannot 'dispose' of something you still have, but you can impair it.

Exactly.

Do the auditors actually object or are they simply looking for an explanation ?

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