VALUING PROPERTY - REPAIRS AND MAINTENANCE - 8618.2

(Revised and renumbered from 8618)

In contrast to improvements, repairs and maintenance retain value rather than provide additional value. Maintenance activities keep an asset in good working condition or make it possible for the asset to be utilized for its estimated useful life. Repair and maintenance costs should be expensed in the period in which the costs are incurred.

For example:

• A building has an estimated useful life of 40 years. In year 5, repairs to electrical wiring in several rooms is required. The cost is greater than $5,000. The repairs will be warrantied for one year. The repairs would not be capitalized because the repairs simply return the building to good working condition and do not extend the building’s initial estimated useful life.
• A building has an estimated useful life of 40 years. In year 15, replacement of the roof is required to keep the building in good working order. The roof replacement will be warrantied for 15 years at the cost of $200,000. The building would require another roof replacement 10 years before the end of its estimated useful life. The roof replacement would not be capitalized as it does not extend the building’s initial estimated useful life.
• A vehicle is estimated to have a five-year useful life. In year 4, the vehicle requires a $5,500 transmission replacement. The transmission replacement will return the vehicle to good working condition. The repair should not be capitalized as it does not extend the initial estimated useful life nor improve the efficiency of the vehicle.

See SAM section 8618.1, Improvements, for capital costs.