Recently designing fixed asset policy procedures for a client, we came across the following situation.

The client has a production line where, frequently, there is a need to change parts that suffer wear due to contact with aggressive chemicals. But the value of the pieces is more than U$ 10,000.00 – And according to the company’s interpretation, they are immobilized.

And as we are implementing the fixed assets policies, we were asked if the procedure is correct.

The company’s argument is that, according to CPC 27, all expenses that increase the asset’s useful life can be accounted for as fixed assets. But the doubt remains, because it can be argued that all maintenance prolongs the useful life of an asset.

In order to interpret correctly, and verify if this expense can be accounted for as fixed assets, I first need to establish the concept of useful life, which is the time or duration of life that the asset will have for the company. This is not necessarily the same established by the manufacturer of the good, also called economic life. Here, a common error occurs in the interpretation of CPC 27. Even when maintenance or replacement of parts increases the expected duration of the asset, that is, its economic life, it may happen that the useful life does not change for the company.

This can happen in the case of equipment that has, for example, use for a certain period, either because it is linked to a project, or for another reason. In this case, even the replacement of important parts, which extend the economic life of the asset, does not change the expectation of use for the company, and consequently does not influence the accounting useful life. Therefore, it is not possible to record this expense in a fixed asset account.

But following the analysis, after defining the real useful life of the asset for the company, we have to interpret whether this maintenance is periodic and necessary to maintain the original characteristics of the asset. In this case, even replacing parts that wear out due to normal use of the asset, it is a maintenance cost.