Definition
The financial accounting term costs subsequent to acquisition refers to additional expenditures associated with property, plant and equipment. In general, companies make four types of investments in existing assets: additions to plant, improvements, reinstallations and repairs.
Explanation
Subsequent to assets being placed into service, they oftentimes require additional investments to either improve or maintain their productivity. When companies make additional investments in existing equipment that will increase its productivity or add new functionality, that investment is capitalized. When costs are incurred to maintain a given level of productivity, the cost should be expensed.
To capitalize costs associated with existing property, plant and equipment, one of the following three conditions must be met:
The quality of output is enhanced in some manner. The units produced contain functionality that was not present prior to the investment.
The useful life of the asset is extended. For example, the expected service life of the asset is longer after the investment.
The capacity or productivity of the equipment increases. The units of output are higher.
Accounting practices categorize new investments in existing assets in one of four ways:
Additions: an ad-on or increase to plant, property or equipment. Additions are typically capitalized.
Improvements: the replacement of a new (and improved) asset for an existing one. Capitalization of the improvement occurs when it meets one of the criteria mentioned above.
Reinstallations: moving an asset from one location to another. Capitalization of the reinstallation occurs when it meets one of the criteria mentioned above.
Repairs: costs associated with the restoration of equipment to a state of satisfactory operating condition. Ordinary repairs are typically expensed; however, if one of the above criteria applies, it may be capitalized.
Related Terms
- The financial accounting term property, plant, and equipment is used to describe assets of a long lasting nature, which are used in the normal operation of the company. The most common types of property, plant, and equipment are land, buildings, and machinery.
Moneyzine EditorSeptember 21st, 2023 
The financial accounting term additions to property, plant, and equipment refers to one type of cost subsequent to acquisition. Additions are defined as an increase or expansion of these assets and the cost is typically capitalized.Moneyzine EditorJanuary 4th, 2024
The financial accounting term improvements and replacements refers to a category of cost subsequent to acquisition. A replacement occurs when a similar asset is substituted for the original asset, while an improvement involves the substitution for a more advanced asset.Moneyzine EditorSeptember 20th, 2023- The financial accounting term reinstallation and rearrangement refers to a category of cost subsequent to acquisition. A rearrangement or reinstallation occurs when equipment is moved from one location and installed in another. This is typically performed to increase production at the receiving location.Moneyzine EditorSeptember 21st, 2023
- The financial accounting term repairs to property, plant, and equipment refers to a category of cost subsequent to acquisition. Repairs are typically broken down into two subcategories: ordinary and major. Ordinary repairs are typically expensed, while major repairs may be capitalized if certain criteria are met.Moneyzine EditorSeptember 21st, 2023
The financial accounting term disposition of property, plant, and equipment refers to the disposal of the company's assets. This can include the sale, exchange, abandonment, and involuntary termination of the asset's service. Disposition of plant typically results in a gain or loss appearing on the company's income statement.Moneyzine EditorJanuary 16th, 2024- The term sale of property, plant, and equipment refers to the selling or exchange of the company's assets. When the sale of property, plant, or equipment occurs, the company must compare the asset's original purchase price and accumulated depreciation to its selling price to determine if there was a gain or loss on the transaction.Moneyzine EditorSeptember 21st, 2023
The term involuntary conversion refers to the unscheduled termination of property, plant, and equipment's service as the result of an unwanted event such as a fire, flood, or even theft. When the involuntary conversion of assets occurs, the company must compare the assets' original purchase price and accumulated depreciation to the disposition price to determine if there was a gain or loss on the conversion.Moneyzine EditorJanuary 23rd, 2024
The term acquisition cost refers to the total of all the expenses associated with placing an asset into service. Acquisition cost is a managerial concept believed to more accurately reflect the total resources related to the purchase of an asset.Moneyzine EditorJanuary 4th, 2024
