What is the difference between repairs and maintenance and improvements?

This is an age-old accounting question. The difference is important because repairs and maintenance are expensed, and improvements are capitalised,

A key distinction between the two is as follows:

• Repairs and maintenance are the day to day operating costs of the assets and are incurred to “maintain” assets in their current state and value.
• Improvements – as the word describes – enhance the asset in some way, for example, by extending its useful life, or increasing its value.

Entities should develop accounting policies that define “repairs and maintenance” and “improvements” for the different assets it controls. The policies should clearly articulate  what expenditure is deemed to maintain assets and at what level expenditure enhances an asset. As the accounting aims to reflect how assets were managed by an entity, it is useful for asset managers, engineers, and other internal experts to be involved in the development of asset-related accounting policies.

This article reflects the views of the staff of the ASB and not the Board.