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The criteria for capitalization of fixed assets generally refers
to capitalize incurred cost to achieve greater benefit in the
future. The criteria are (1) the useful life of the asset must be
increased, or (2) the quantity of units produced from the asset
must be increased, or (3) the quality of the units produced must be
enhanced. In General, four major types of expenses are included in
the cost of a fixed asset, they are (1) Additions – increase or
extension of existing assets (2) Improvements and replacements –
substitution of an improved asset for an existing one (3)
Rearrangement and reinstallation – movement of assets from one
location to another to benefit future periods (4) Repairs –
expenditures that maintain assets in condition for operation.
Interested should be included in the cost of a fixed asset, GAAP
requires the capitalizing actual interest method, which means that
the historical cost of acquiring an asset includes all costs
incurred to bring the asset to the condition and location for its
intended use, the company can defer interest costs until the asset
is ready to use and the company can earn revenue.
When a company includes interest in the cost of a fix asset, it
should consider three items including qualifying assets,
capitalization period, and amount to capitalize.

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