The following are some of the main situations regarding these disbursements.



 Repairs and maintenance. Repairs and maintenance comprise expenditures that do not expand the asset's ability or efficiency and simply keep the asset in its existing condition or that restore the asset to work well. For example, repairs are the cost of painting a car, repairing a collision, tuning and changing tires. In all these cases, the disbursements made must be charged to expenses against the results of the period in which they were made.
Extraordinary repairs. They include those repairs that are not carried out frequently, imply a significant disbursement in general, and increase the value of use efficiency or the useful life of the fixed asset. For example, it is the case of the change of engine of a vehicle, the renovation of the electrical system of the plant, and the change of the system of water and drainage in a building. Extraordinary repairs must be charged to the cost of the asset, increasing it. In this way, the net book value is now higher and should be depreciated over the remaining useful life of the asset. If the repair has increased the useful life of the asset, the depreciation schedule should be recalculated for the following periods. Additions. The additions represent new assets that are added to the original asset, Such as the construction of additional floors in a building, the installation of a cistern for an apartment building or the construction of a new pavilion in a medical center. In these cases, the costs that have generated the additions must be capitalized, increasing the original cost of the asset.
Improvements and replacements. Improvements and replacements represent the replacement of parts of the original asset with new ones that will increase the future benefit of the asset. The improvement is an expense arising from the replacement of the original asset by a better one that increases the capacity or efficiency of an asset or extends its useful life. For example, switching from a gasoline engine to a tanker in an automobile is considered an improvement. Equally is a major engine repair, which allows the vehicle to use an additional 150,000 kilometers.
Depreciation

Depreciation is defined as the process of allocating the cost of a fixed asset over the period in which it is estimated to be used. Many times the concept of depreciation leads to confusion and it is necessary to be very clear as follows:

Depreciation is not a valuation process by which the cost of the asset is allocated to expenses in accordance with the self-assessments made at the end of each period. Depreciation is an allocation of the cost of the asset to expenses in accordance with its original cost.
A fully depreciated asset only means that it has reached the end of its estimated useful life, ie it does not record any depreciation for the asset. This does not mean that the asset is discarded or is no longer used; Most of the time, companies continue to use fully depreciated assets.
Depreciation does not mean that the business apart from cash to replace the assets when they become fully depreciated. Depreciation is simply part of the cost of the asset that is sent to expenses and does not mean cash.
Depreciation does not imply a movement of cash but it does affect the cash of a business in the sense that it constitutes a deductible expense for tax purposes. Therefore, depreciation affects the level of profits and the payment of taxes. At a higher level of depreciation, profits are lower, and the corresponding taxes are also lower.

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