Question

Meaning of replacing fixed asset ?!

There are two types of replacing fixed asset: (fixed asset usage)(fixed asset life) explain each of them ?! with giving suitable examples

Answer 1

Replacing fixed asset means substituting the current /present fixed asset with an equally valued or similar asset

Fixed Asset Usage replacement is where a part of the fixed asset is replaced and is treated as a revenue expenditure as did does not increase the value or life of the present asset example a conveyor belt of a machine is replaced . It does not increase the value or life of the enitre machine in totality.

Fixed Asset Life is where the entire asset is replaced with a another asset or any major part is replaced with enhances the value and the life of the machinery and is treated as a capital expendiure and is capitalized example where an entire processing machine is replaced with a similar machine or an annexure is conrtructed to an existing building.