Audit: fixed asset additions

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When a company buys long-term assets, the cost goes on the balance sheet instead of being an expense. That makes it tempting, or just easy by mistake, to capitalise things that should be expenses, such as repairs. Auditors check each addition against its invoice to make sure it is really an asset, at the right amount, in the right year.

Example. Replacing a broken window with an identical one is a repair (an expense). Adding a new extension to the building is an improvement (capital).

Key words

Addition: A long-term asset, such as a machine or a vehicle, that the business bought during the year.Example: A new delivery van bought in August for £32,500 is an addition in that year.
Capital expenditure: Money spent to buy a long-term asset, or to improve one so it does more or lasts longer. It goes on the balance sheet, not straight into expenses.Example: Adding a new packing module that increases output by 40% is capital expenditure.
Revenue expenditure: Day-to-day spending, including repairs and maintenance. It is an expense in the period it is incurred.Example: Repairing storm damage to a roof so it is back to its original condition.
Vouching: An audit test that starts with a figure in the accounts and checks it back to the original document, such as an invoice. It tests that the item is real.Example: The auditor picks a £148,000 addition and finds the supplier’s invoice for it.
Reclaimable VAT: VAT paid on a purchase that a VAT-registered business can claim back from HMRC. It is not part of the asset’s cost.Example: A van costs £32,500 plus £6,500 VAT. The £6,500 is reclaimable, so the van’s cost is £32,500.

Your brief and documents

Harbour & Hale again, year end 31 March 2026. Performance materiality is £18,000.

From: Sam (Audit Senior)

To: You

Subject: Harbour & Hale: PPE additions

Hi,

Additions to property, plant and equipment this year total £392,500. Please vouch every addition to its invoice and check it is capital in nature, recorded at the right amount, and in the right year. The client charges a full year’s depreciation at 10% straight-line in the year of purchase.

Thanks, Sam

Document 1: Additions listing, year to 31 March 2026

#	Description	Amount recorded £
1	Roasting machine R-2	148,000
2	Delivery van	39,000
3	Warehouse roof	64,000
4	Packing line upgrade	78,500
5	12 office laptops	14,400
6	Industrial coffee grinder	48,600
	Total	392,500

Document 2: What the invoices show

#	Invoice details
1	Roasting machine £142,000 plus installation £6,000. Dated 12 August 2025.
2	Van £32,500 plus VAT £6,500 = £39,000. The client is VAT-registered and can reclaim the VAT on the van.
3	“Repair of storm-damaged roof tiles, restoring the roof to its original condition.” Dated 20 November 2025.
4	New automated packing module, increasing capacity by 40%. Dated 3 February 2026.
5	12 laptops at £1,200 each. The client capitalises IT equipment over £500.
6	Grinder ordered in March, but delivered and invoiced on 4 April 2026.

Watch it explained

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Videos from YouTube tutors

These videos are made by independent tutors on YouTube, not by Trial Balance. Some use US terms or older exam names (for example F7 for FR), but the principles are the same.

How a senior would approach it

Capital or revenue? Spending that creates a new asset or improves an existing one (more capacity, longer life) is capital. Spending that restores an asset to its original condition is a repair, which is an expense.
Right amount: cost excludes VAT the business can reclaim, but includes costs of getting the asset ready for use, such as installation.
Right year: an asset is only an addition once the business controls it, normally on delivery.
Follow the knock-on effects. If an addition is wrong, the depreciation charged on it is wrong too.

Your tasks

Work through the tasks in order, using the documents in your brief. Each task is checked when you press Check answer.