What is Repairs and Maintenance Expense?

Repairs and maintenance expense is the cost incurred to ensure that an asset continues to operate. This may involve bringing performance levels up to their original level from when an asset was originally acquired, or merely maintaining the current performance level of an asset. Expenditures required to increase the performance level may result in the capitalization of the additional costs. For example, replacing the oil filter in a truck is considered a maintenance cost, while replacing the roof of a building extends the life of the building, and so its cost will be capitalized.

Example of Repairs and Maintenance Expense

Regional Transport operates a tramp steamer that operates down the east coast of the United States. The ship requires substantial maintenance, given the impact of salt water on its hull and machinery. Here are several scenarios for repair and maintenance activities:

Routine maintenance. The ship undergoes “spot” painting of corroded spots on the decks while the ship is in transit. The ongoing cost of this activity is about $500 per month. This is charged to repairs and maintenance expense, because it is a routine maintenance activity.
Dry-dock maintenance. Once every five years, the ship goes into dry-dock for two months. During this time, the hull and equipment are completely overhauled. This maintenance is required to extend the life of the ship, so it is capitalized and depreciated until the next scheduled dry-docking, which will be in five more years.
Major repair. While in transit down the coast, a winch breaks. The ship ducks into the nearest port to obtain replacement parts for the winch from the local ship’s chandler, at a cost of $10,000. This is a major repair, but it does not extend the useful life of the winch or enhance its functionality. Accordingly, the cost of the winch parts is charged to repairs and maintenance expense.
Upgrade. The company decides to upgrade the engines with a bunker fuel filtering system that will prolong the life of the engines by two years, at a cost of $50,000. Since this extends the life of the engines, the cost is capitalized and depreciated over the useful life of the new filtering system.

In short, some expenditures will be charged to the repairs and maintenance expense account, while others will be capitalized and depreciated over time, depending on the nature of the expenditure.