We must all have been through something like this. Moments where something innocuous leads to an earth-shattering revelation (or so it seems to us). This is one of those stories…
Just when I started writing this article, I encountered a distraction which was A Pop-Up Box reminding me of my laptop’s low battery and requesting to connect to a power source immediately. Realizing my negligence I checked the battery meter of my laptop which was about to surrender at a mere 9 % and it was then that I started searching for my bag to take out the laptop charger. After connecting the adapter’s jack into the charger port, I switched ON the power button. The laptop responded with a sudden increase in the screen brightness. This personified smiling gesture of my “Vostok Station” made me realize that electronic equipment are happy when connected to power source.
Before you start thinking about the weird nick name of my “Vostok” and whether I regard it as him or her, let me tell you that the UPS-Inverter technology just saved the possible loss from my second Distraction – A Power Cut. Amidst this not so surprising blackout I was happy for my laptop as she still had her wonderful Mona Lisa Smile.
Dear Reader, have you ever faced a situation when your laptop runs out of power just when you have an important mail to send, and the moment you plug-in the charger the electricity goes off?
Yes you could have is not a bad guess! Because we continuously get saved by the Inverter Batteries, like I did. These batteries store the power and provide Backup Utility on disruption in normal power source.
After, a certain usage these batteries do wear out, and are unable to provide us the required backup. We just cannot keep using the same batteries indefinitely! We do have to replace them and should ensure that the old ones are disposed of safely.
The purpose of my article actually starts here with my First question. Is the cost of replacing these batteries a capital expenditure or a revenue one?
Capital??? Changing of batteries will enhance the life and potential of the inverter. Also, the inverter has no value without its battery, and cost of replacement would substantially be equal to the initial cost.
Now to capitalize this cost, few simple conditions also need to be fulfilled. It’s basically that the initial cost of inverter was recognized as a Capital Asset. Then, we must have also charged depreciation from its first day of use. For Income tax purposes at 15 % under the Plant & Machinery Block or rather 60 % in the Computer Block, assuming these are put to use only as a computer peripheral, though this would not be correct.
Ideally, I must conclude here and state that given these conditions are fulfilled we can capitalize the cost of replacing the batteries. But, I have one more idea. Can we consider some part of an Inverter as Intangible Asset? An Inverter is power backup equipment and provides electricity which practically is intangible. By replacing the batteries we would be actually replacing the intangible electricity component of our power backup system.
Let’s compare this to the human resources in an institution. One of the biggest sources of intangible assets is human capital for any organisation. You cannot necessarily see the ideas that are in a person’s head, but they definitely do add value to a company. It is difficult to put an actual value on intangible assets. This process is unique for everyone and there is a lot of room for interpretation.
Enough of it, right! Now, relax your thinking caps and read this extract which says that I cannot capitalize the replacement cost. Without this extract this article wasn’t that knowledgeable.
As per Para 23 of Accounting Standard 10-“Subsequent expenditures related to an item of fixed asset should be added to its book value only if they increase the future benefits from the existing asset beyond its previously assessed standard of performance.”
Thus, replacing a worn out battery does not by itself improve the previously assessed performance of the inverter. So it should not be added to the value of the asset unless the new batteries are of higher capacity then the old ones.
Hence concluding with good news for us and maybe rather bad one for the power backup industry – “Solar is the future”
Finally the third and last distraction…..
Your Battery is 100 % charged. Please unplug the device.
Hope you have enough power in your device to search what “Vostok Station”, my laptop’s pet name means. Do visit “Vostok Station” and experience the lowest reliably measured natural temperature on Earth. I am experiencing the chill having a look of this awesome place as it happens to be my cell phone’s wallpaper also.
By the way the device fully charged is my cell phone and not the laptop.
Keep smiling!!! Stay Cool!!!
Disclaimer: This is a pure work of fiction. Except otherwise stated no content has a defined source for authenticity. Places, events and incidents either are the product of the author’s imagination or are fictitious. Any resemblance to actual persons, living or dead, events, or locales is entirely coincidental.
About The Author:
|Ansuman Agarwal is a member of the NestAway community.|