Expense of Maintenance and Effect of Abandonment

The term “asset” comes from the field of accounting and refers to any resource that a firm has that it anticipates will be of use to the business. According to this definition, the assets that are the responsibility of maintenance management would be categorized as “fixed” assets. By this definition, “fixed” assets are defined as physical resources that are more or less permanent fixtures in the business’s activities. The acronym PPE, which stands for “property, plant, and equipment,” is another name for these assets. As a result, they could consist of things like machinery, tools, land, buildings, and even information technology equipment. The value of these kinds of assets is going to decrease over time, and the cost of that depreciation needs to be accounted for as an expense. It is possible that the declining value of an item will influence some decisions regarding its maintenance. For instance, if a piece of machinery requires significant repairs, the cost of those repairs is evaluated in light of the machinery’s present depreciated value in order to ascertain whether or not the work will be truly beneficial. It may be more effiecient to replace an asset than to repair it in certain circumstances.

A decrease in the value of an asset as a result of its utilization in the production of revenue is known as a cost. If the underlying asset is going to be used for an extended length of time, the expense will take the form of depreciation and will be charged on a proportional basis throughout the asset’s useful life. When an expense is for an item that is immediately consumed, such a salary, it is typically recorded as “incurred” as soon as the expense is made. When using the cash foundation of accounting, an expense won’t be recorded until a cash payment has been made to either a vendor or an employee. This is standard practice. As was mentioned earlier, an expense is recorded in accordance with the accrual method of accounting whenever there is a decrease in the value of an asset. This occurs regardless of whether or not there is a linked cash outflow. If the whole amount spent is less than the capitalization limit that is used by the company, then the purchase of an asset may be recorded as an expense rather than an investment. If the amount paid was largerthan the limit for capitalization, then it would not have been recorded as an expense but rather as an asset, and the expense would have been charged at a later period, when the asset was used up. In accordance with the matching principle, expenses are normally recognized in the same period that the relevant revenues are recognized in the accounting records. For instance, if a sale of products occurs in the month of January, then the revenue from the sale as well as the cost of items sold associated with the transaction should be recorded in January. If an expense is for a relatively low amount and there is a possibility that it will not be used for a considerable amount of time, it is customarily written off as an expense all at once. This is done to save the time of the accounting staff, which would otherwise be required to record it as an asset.