If it's a minimal amount (such as a single door alarm) then expense otherwise it needs to be capitalised (I know some security systems cost a small fortune).
If the system is to be capitalised then it must be capitalised separate to the building as it was not a necessary element of bringing the building into condition for use and also has a different life expectancy to the building for depreciation purposes.
The building may be depreciated over 50 years but it is doubtful that the useful economic life of the alarm system is more than 10 so requires depreciation to a different schedule.
This situation is covered in detail by FRS15 Tangible Fixed Assets.
A common example which at first glance doesn't sound the same but think about it, is a plane. In the life expectancy of your average plane it will get through several changes of engines. Therefore, the plane is depreciated over (say) 25 years but the engines will be depreciated over 5 years.
The same with the alarm system. Capitalise and depreciate the building and the alarm as separate entities even though they would appear to be part and parcel of the same asset.
Hope that this helps,
Shaun.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
I would just add for future reference that expensive enough improvements would be considered assets, however look out for words beginning with 're' like renew, repair etc, these would normally not be considered improvements so can be classed as expenses. the main difference would be taht an improvement is not making good something but replacing with a superior good (however if the improvement is because something is obsolete it may be considered a renewal!)
A common example which at first glance doesn't sound the same but think about it, is a plane. In the life expectancy of your average plane it will get through several changes of engines.
I know the avatars have moved on from Only fools and horses but is anyone else thinking about Trigger's broom that he had maintained for 20 years and in that time the same brush had had seventeen new heads and fourteen new handles. http://www.youtube.com/watch?v=bk24RdfXWcg
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just found a quote in FRS15 Tangible fixed assets that I think you might find helpful :
In the following situations subsequent to initial expenditure the expenditure should be capitalised :
1) Where the economic benefits of the asset are enhanced in excess of previously assessed standard of performance.
2) Where a component on the asset that is depreciated seperately is replaced or restored.
3) Where a major inspection or overhaul of an asset restores economic benefits consumed by the entity that have been reflected in depreciation.
Examples of each would be :
Number (3) above is resetting of the depreciation clock after an overhaul such as relining a kiln. Or where a plane is inspected to ensure air worthiness.
Number (2) would be the replacement of an engine on a plane.
Number (1) would be where a machine making 1000 widgets an hour is upgraded to produce 2000 widgets an hour.
Hope that this proves useful to someone. Its certainly one that I'm going to memorise for future reference.
Shaun.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
