Under IAS 16 (Property, Plant and Equipment) and ASC 360, routine maintenance and repairs—such as regular lubrication, belt replacements, minor component servicing, and recalibration—must be expensed immediately as factory repair expense within Cost of Goods Manufactured. These activities merely maintain the asset's existing operating capacity.
However, major overhauls, engine retrofits, or automation upgrades must be capitalized if they satisfy three criteria: they extend the useful economic life of the machinery, enhance unit output capacity, or substantially improve output quality/safety. For multi-million manufacturing machinery, Mantorius establishes Component Depreciation, where distinct parts (e.g., CNC spindle vs. chassis) are depreciated across their specific useful lives. For client-specific tooling and dies, if ownership transfers to the client, costs are recognized against contractual milestones; if retained by the plant, tooling is capitalized and amortized over the contractual production volume.