(Calgary, AB, Canada)
Should it be expensed or capitalized?
I have a client in the restaurant business. Recently their large commercial cooler was not keeping its temperature. They had someone come out and ended up upgrading and repairing the motor and a few other parts ended up being replaced. The invoice is over $5,000.00 for parts and labor.
Because my client repaired the existing cooler versus replacing with a new cooler would you expense the amount 100% or should it be capitalized even though it is not new equipment rather an upgrade and repair to the exsiting unit (maintenance and repair)?
Often times in accounting, there are gray areas where judgement has to be used to determine how to record an entry that stays true to GAAP.
CRA has a list of questions for you to consider when determining whether an item should be expensed or capitalized. Click here to read the list
As you can see after you review and answer CRA's questions, if it had been a straight repair to the cooler, the expenditure would be expensed. However, in your situation an upgrade was also done complicating the decision a bit. I'd lean towards capitalizing this due to the amount of the expenditure and the fact that an upgrade was made.
Review the questions with the owner to get his/her input. If you have an accountant you send information to at year-end, check in with him/her for their opinion. Here's where professional judgement comes in and certified accountants are trained to handle the gray areas.