AccountingBLOCK - Tax and Accounting Forums

How do I account for the following from a GAAP (as opposed to tax) perspective:

We have a building with a structural defect that was identified and repaired before any major damage occurred to the building. This building was purchased many years ago and the structural component that failed would have been fullly depreciated, The repairs were major (and costly) in nature and it is the opinion of our facilities folks that the repairs made to fix this defect extended the useful life of the building. GAAP appears to allow capitalization of major repairs if they meet any one of three criteria for capitalization (increase to the assets longevity, worth, or utility).

Separate from this, we have insurance which will cover some (if not all) of the repair costs.

How should I account for this? Do I capitalize the repairs and treat the insurance proceeds as a gain? Do I net the insurance proceeds against the repairs and capitalize (or expense) any costs above the insurance proceeds.

Since it's easy to argue the capitalization vs repair and waste countless time, many companies adopt a policy based on the amount (>___,000 capitalized; anything else is expense). You'll find objective measures usually work better than the subjective. In the case of creating an amount qualified policy there is only one subjective decision, initially choosing the cutoff amount, after that all are objective.

Insurance reimbursements are always netted to outlays incurred.