During operation, fixed assets (hereinafter − FA) deteriorate and gradually lose their original value, and sometimes they go out of operation. In this case, the company is forced to spend money on their repair, maintenance, modernization, reconstruction or for restoration and support in operating state. How should such expenses be reflected in accounting?
The order of reflection of expenses for repair, maintenance, modernization, reconstruction or for the restoration and support in operating state of FA in the accounting of the company depends on the type of repair − capital or current.
Capital repair
Capital expenses are considered to be costs associated with the improvement of FA (modernization, completion, additional equipment, reconstruction, etc.), which lead to an increase in future economic benefits initially expected from their use.
Such expenses increase the initial value of FA (para. 14 of Accounting Standards 7). That is, capital expenses are accumulated in the corresponding subaccount 15 of “Capital investments” and after the completion of repairs are included in the original cost of FA. They are reflected under the debit of the subaccount 152 with a credit account 23, 20 “Productive supplies”, 22 “Low-value and high-value items”, 63 “Payments with suppliers and contractors”, 65 “Payments for insurance”, 66 “Payments calculations” in the accounting. And after the completion of repair they are reflected under the debit of the corresponding subaccount account 10 with a loan subaccount 152.
It should also be remembered that during the period of capital repairs of FA, depreciation of this object should not be accrued. Moreover, the depreciation accruing should be stopped from the month following the month of the release of the object of FA and should be renewed from the month following the month of the commissioning of the facility after reconstruction, modernization, additional equipment, reconstruction (para. 27 of Guidelines for the accounting of fixed assets, approved by the order of the Ministry of Finance dated September 30, 2003 No. 561 (hereinafter − Guidelines No. 561).
Current repair
The costs incurred to maintain FA in operating state (technical inspection, supervision, maintenance, repair, etc.) and the receipt of the initially determined amount of future economic benefits from its use, are considered to be current repair and included in the expenses of the reporting period (para.15 of Accounting Standards). Such expenses should be reflected under debit of the account 23 or expense accounts 91−94 (depending on the purpose of FA) with a credit account 20, 63, 65, 66.
The difference between capital and current repairs is that the purpose of capital repair is to increase the future economic benefits initially expected from the use of FA, and the current repair is to obtain the originally determined amount of future economic benefits from their use. Accounting Standards 7 does not explain how exactly the company should determine the future economic benefits. At the same time, in para. 29 of Guidelines No. 561 it is stated that the head of the company makes the decision on the nature and characteristics of the works carried out by the company, that is, will they lead in the future to increase the economic benefits, whether they are carried out to maintain the facility in a suitable state of use and obtain a predetermined amount of future economic benefits from its use.
Acceptance of completed works on the repair and improvement of FA (upgrading, completion, reconstruction, etc.) are issued by the act of acceptance-delivery of repaired, reconstructed and upgraded objects.
