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The costs of acquiring a fixed asset will be capitalised on the balance sheet in accordance with GAAP and will therefore not be deductible for the purposes of calculating trading profits. However, expenditure on repairs to a newly-acquired capital asset may be deductible provided, at least, that¹:

1. Ìý

   •ÌýÌýÌýÌý the cost is properly charged to the income statement in accordance with the correct principles of GAAP

2. Ìý

   •ÌýÌýÌýÌý the repairs are not actually improvements and would still have been treated as revenue expenditure if ownership had not changed

3. Ìý

   •ÌýÌýÌýÌý the expenditure was not incurred to make the asset commercially viable, or make it in a fit state to use following its acquisition, and

4. Ìý

   •ÌýÌýÌýÌý the purchase price was not substantially less than it would have been if it had been in a proper state of repair at the time of purchase

If the costs of the repairs are not charged to the income statement, a deduction will be denied, as in the Turners (Soham)² case.

See generally