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September 2024

Date of Capitalisation of Property, Plant and Equipment

By Dolphy D’souza, Chartered Accountant
Reading Time 7 mins
The date of capitalisation is very significant in the case of property, plant and equipment. This is the date on which the assessment of useful life and residual value is made, and depreciation commences. Other than in accounting, it has tremendous significance with respect to determining depreciation for tax purposes as well. Consider a simple situation, Mr X purchased a car but is unable to drive it, because he does not yet have a driving license. It takes him a year, to get a driving license, after which he starts running the car, which was lying idle till then. The question is whether the depreciation should commence on date of purchase of the car or the date when Mr X starts running the car. This article deals with this basic and other related questions.

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Energy Limited (Energy) has one engine that is part of a bigger machine and is being used to produce energy for the plant. Energy has a stand-by engine which is a backup to the first engine. The stand-by engine will be put to use only if the first engine fails or is otherwise rendered out of service. Though the stand-by engine is necessary to ensure continuity of production in the event of failure of the first engine; i

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