IFRS for SMEs / For bookkeepers / When is a purchase an asset and not an expense?
When is a purchase an asset and not an expense?
The rule
An item used for more than one year to run the business is property, plant and equipment (17.4). It goes on the balance sheet at cost and is depreciated over its useful life. Running costs such as fuel, repairs and insurance are expenses when they are incurred.
Use a capitalisation threshold
Small items are expensed for practical reasons. Agree a threshold with the accountant, for example R 7 000, and apply it consistently: an item bought above it is an asset, an item below it is an expense. Sight uses the threshold recorded for the company.
Common cases
- A laptop or printer above the threshold is computer equipment.
- A vehicle, trailer or bakkie purchase or deposit is a motor vehicle, even when it is financed.
- A vehicle service, tyres or a licence renewal is an expense.
- Repairs that extend an asset's life or capacity are added to the asset; routine maintenance is not.
Worked examples
| Bank statement line | In or out | Categorise to |
|---|---|---|
LAPTOP PURCHASE | Out | Computer equipment |
FUEL | Out | Fuel and oil |
Related
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