accounting question (1 Viewer)

[herewego]

how would you record 'upgrading'/improving a non current asset by a meterial amount i.e. add value to it by modifying it (thus increasing its value)?

is it just this

dr asset
cr cash/ap

or do u need to use the valuation surplus/ARR method?

 

[tempco]

depends. if you're actually spending money to improve on an asset, you'd capitalise the cost. it'd be:

dr asset
cr cash/payable

if it's just a revaluation (without expendature):

dr asset
cr revaluation surplus

 

[mr_shittles]

how would you record 'upgrading'/improving a non current asset by a meterial amount i.e. add value to it by modifying it (thus increasing its value)?

is it just this

dr asset
cr cash/ap

or do u need to use the valuation surplus/ARR method?

If you spend money to modify or upgrade an asset, presumably its value increases by the amount of the upgrade. So what you had there is correct. ARR is only touched when an asset appreciates in its own right.

For example, if a business owns a $100K factory/building, and spends $20K upgrading it, the book value of the asset will appreciate to $120K when the upgrade is carried out. If instead of putting that $20K to the building, the company put it to ARR, it would not be able to depreciate the cost of the upgrade.

ARR's use is usually restricted to financial assets such as land, shares, etc. when they appreciate in value.