Accounting for Repair and Maintenance

Repair and Maintenance is the amount that a company spends to restore the condition of the fixed assets. The company spends this cost to restore assets to the previous condition or keep the present condition over a longer period of time.

Repair and Maintenance can be classified as the company operating expense or capitalize as the assets and depreciate over time.

Repair and Maintenance Expense

Normal repair and maintenance expense which incur regularly is classified as the operating expense. It is the expense which not bring any improvement to the assets, but only to keep the assets at the current state over long term. The company needs to spend on repair and maintenance expenses to keep the assets operate in optimal condition. Some assets require regular maintenance to keep operating at the optimal level.

Repair and maintenance expenses are necessary for the assets and they incur on a regular basis. Without them, the assets such as machinery will not work properly in the current condition.

Example of Repair and Maintenance Expenses

  • Building Painting
  • Car regular maintenance such as oil and some accessory
  • Change Machinery oil
  • Air Con cleaning
  • Repair Broken pipe of the building

Accounting for Repair & Maintenance Expense

Repair and maintenance expense is recorded as the operating expense base on accrued basic. The journal entry should be:

Account Debit Credit
Repair and Maintenance Expense 000
Accounts Payable/Cash 000

Capitalized Repair and maintenance

Any repair and maintenance expense that increases the assets’ useful life or production capacity will be capitalized into the assets. It is the major repair that necessary to achieve otherwise assets will not be able to use.

Some assets are broken due to the accident so they are unable to operate. However, the company can spend some money to repair the assets and bring them back to life. Without such kind of repair, the assets will not be able to use and require write-off.

Some assets are reaching the end of useful life, however, repair and maintenance can extend the useful life beyond the original useful life. The repair cost may be lower than purchasing new assets so the company prefers to do so.

Moreover, the repair and maintenance can increase the asset’s capacity above the normal capacity.

These are the repair and maintenance which need to capitalize as the assets and calculate depreciation. Such kind of repair and maintenance usually have a high cost if compare to expenses.

Example

  • Renovate a floor to change it from office to warehouse.
  • Add pool to the building roof
  • Replace pipe system of the building
  • Overhaul the machinery to increase its useful life
  • Repair the car after the accident

Accounting for Capitalized Repair & Maintenance

The capitalized repair and maintenance must be classified as the assets or part of the fixed asset in the balance sheet. The balance of capitalized repair must be depreciated over the assets remaining useful life.

Initial recording of capitalized repair and maintenance

Account Debit Credit
Fixed Assets 000
Accounts Payable 000

Subsequent measurement of capitalized repair and maintenance

Account Debit Credit
Depreciation Expenses 000
Accumulated Depreciation 000

Repair and Maintenance Expenses Vs Capitalized repair and maintenance

Repair and Maintenance Expenses Capitalized repair and maintenance
The purpose to keep assets operate at the optimal level. The purpose to restore assets’ value, increase the useful life, and increase the capacity.
Occur on a regular basic such as monthly, quarterly, or annual. Only happen when assets reach a certain condition or management wishes to increase assets’ original capacity.
The benefit generates from the cost incurred will not last more than 12 months. The benefit from cost will last more than 12 months.
Record as expense in the income statement. Record as assets or part of assets in the balance sheet.