Major inspections: replace the old component when you capitalise the new one
A machine receives a qualifying £48,000 major inspection while £10,000 of its previous inspection remains on the books. Adding £48,000 alone leaves both inspections in the asset balance. Under UK-adopted IAS 16, the new inspection replaces the old component, even where no physical part is replaced.
Separate a major inspection from servicing
IAS 16 treats day-to-day servicing as expense when incurred. A regular major inspection that is a condition of continuing operation can instead qualify as a replacement component when the asset-recognition criteria are met. Invoice size or the word overhaul does not decide the answer.
Paragraph 14 requires derecognition of the remaining carrying amount of the previous inspection. That requirement applies even if the earlier inspection was not separately identified when the machine was bought. Where necessary, the estimated cost of a similar future inspection can help indicate the original inspection component's cost.
This example concerns owned equipment under the cost model. It assumes probable future benefits and reliably measurable costs. It does not create a rule that every inspection or maintenance contract is an asset.
Find what remains of the earlier inspection
All amounts and dates are hypothetical. Equipment becomes available for use on 1 January 2023 at a total cost of £240,000. Supported component allocation assigns £200,000 to the main equipment with a ten-year life and £40,000 to a significant inspection with a four-year life. Both have nil residual values and straight-line depreciation.
After exactly three years, the main equipment carries £200,000 - 3 × £20,000 = £140,000. The old inspection carries £40,000 - 3 × £10,000 = £10,000. Combined carrying amount is £150,000 immediately before replacement.
A new required inspection costing £48,000 is performed and available for use on 1 January 2026. Assume it meets the recognition criteria and supports four years of benefit. No physical parts are replaced. A separate £5,000 routine servicing invoice contains no capitalisable cost.
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Post the addition and removal together
Record Dr inspection component £48,000; Cr cash or payable £48,000. Remove the old component with Dr accumulated depreciation £30,000; Dr derecognition loss £10,000; Cr inspection component gross cost £40,000. Assume no disposal proceeds.
The asset now carries £150,000 + £48,000 - £10,000 = £188,000. During 2026, depreciation is £20,000 for the main equipment plus £48,000 / 4 = £12,000 for the new inspection, totalling £32,000. Closing carrying amount is £156,000.
Expense the £5,000 servicing cost separately. The example excludes impairment, grants and tax entries. The new inspection does not restart the main equipment's original ten-year life. Significant parts need separate depreciation, beginning when available for use and using supported lives and methods.
| Component | After replacement | 2026 depreciation | End 2026 |
|---|---|---|---|
| Main equipment | £140,000 | £20,000 | £120,000 |
| New inspection | £48,000 | £12,000 | £36,000 |
| Total | £188,000 | £32,000 | £156,000 |
Do not provide automatically for the next inspection
IAS 37 does not permit a provision merely because future operation will require another inspection. Assess any separate present contractual obligation on its own facts. A future inspection budget is different from an existing liability.
Before posting, ask the technical team what work permits continued operation and how long the benefit should last. Identify routine invoice lines, recover the old inspection's cost and depreciation, and approve its removal alongside the addition. That paired record keeps an incomplete asset register from carrying two generations of the same inspection.
Sources and context, checked :