Fixed Asset

[penquanash]

Hi Guys,

My company deals with the transport of food and liquid waste. We have hired a tanker from another company and recently we incurred a cost of £5000 to modify the tanker from Milk carrying to Silage.
Can i CAPITALISE the cost ?

 

[Anna Chandley]

Hi Guys,

My company deals with the transport of food and liquid waste. We have hired a tanker from another company and recently we incurred a cost of £5000 to modify the tanker from Milk carrying to Silage.
Can i CAPITALISE the cost ?

Does any of the £5k spent relate to separate assets that you will retain after the hire period is finished or do the other company get the benefit of any modifications when the tanker is returned to them?

Anna

 

[penquanash]

Hi Anna, The other company gets the benefit of the modification

 

[Anna Chandley]

I would say that this is a revenue expense not capital. Was there a particular reason that you wanted to capitalise the cost?

Anna

 

[David Griffiths]

The fact that it's an alteration made to an asset owned by somebody else doesn't prevent it from being capital. For example, alterations to a leased building are capital, even though it is the landlord that benefits in the long run.

I think that the key question is the length of the hire agreement. If there's more than one year left to run, then there is a case for treating the cost as capital.

I'm guessing that the OP doesn't want to take the hit of £5,000 against current year profits and is trying to spread over a period

 

[penquanash]

Thanks
It will be hired for more than one year so I will capitalise it.
Will the £5000 capital expenditure qualify for Annual investment allowance?

 

[EnhanceAccountancy]

Yes it will qualify if capitalised:

http://www.hmrc.gov.uk/manuals/camanual/CA23084.htm