Should any major parts of an asset be capitalized?

Question

A major parts of an asset got damaged. Another new parts was replaced. But the production output remained same as before. Is it mendetory to capitalized or optional?  The cost of the parts is significant. E.g. the asset's cost CU 10 million & new parts' cost CU 1.5 million. If it is considered as Inventory (spare parts) how much valid it is? Please provide the reference of IAS-16 with paragraph.

Answer 1

Capitalizing something does not necessarily imply it is a depreciable asset. Spare parts could be used for repairs and maintenance or to extend the lives of fixed assets. Under the matching principle, I believe once the part is placed in service, it should be either expensed if deemed for repairs and maintenance or depreciated if deemed to extend the asset’s original life or enhance its value.