Question

Jennifer’s first concern is that OHB is not accounting for its capital assets correctly. She asks you to meet with Robyn Worth, who has been responsible for most of the record keeping at OHB since it was founded in January 2018. At your meeting, Robyn shares the following:
“Capital assets at OHB consist mainly of the equipment and machines used to administer oxygen and IV vitamin infusions to our customers. I track all of the assets and their accumulated depreciation in an Excel spreadsheet, where I depreciate the machines and equipment over their useful lives.
“We pay an external party to service the oxygen machines on a quarterly basis. This ensures their continued cleanliness and functionality. The service provider makes regular maintenance visits and special service calls if need be. For example, if one of the oxygen concentrators stops working, we just call the service provider and they will ensure it’s back up and running right away. For this, we pay a flat quarterly fee, plus the cost for any additional replacement parts required. So far, there have been no charges above the flat quarterly fee. I include the costs in the fixed assets register and depreciate them along with the rest of the equipment.”
Jennifer has asked that you review and provide feedback on the fixed asset register prepared and maintained by Robyn. She would like to be made aware of any concerns you have regarding the quality of the data and the impact it will have on the business.
For any issues that you identify, discuss the implications and provide recommendations to address these issues.

Answer 1

-This Question is about capitalization of Expenses .

As stated that Robyn Worth take equipment and machines as fixed Asset this is correct and depriciation is charged as per AS 6 , is also correct.

Here company hire a external service provider to service the machinary and equipment .this is a revenue nature Expenses.

Recording of these Expenses in fixed asset register is not correct. you can only capitalize the Expenses which is spend on replacement Parts.

My recommendation is seperate the Expenses of service and additional replacement parts.

service Expense -> Profit and loss account

additional replacement parts Expenses -> fixed asset account