The SNA draws a distinction between ordinary maintenance and repairs to fixed assets and major renovations, reconstructions or enlargements (see paragraphs 6.225 to 6.228), but acknowledges that the distinction is not clear-cut. The former are recorded as intermediate consumption and the latter as gross fixed capital formation.
Major renovations or enlargements increase the performance or capacity of existing fixed assets or significantly extend the previously expected service life. Ordinary maintenance and repairs are required so that an asset can be utilized over the whole of the service life expected on acquisition. If the owner neglects maintenance and repairs, then the expected service life may be drastically reduced and unforeseen obsolescence must be recorded as an other volume change in the value of the asset.
If the requirement for treatment as fixed capital were to prevent a reduction in service life, rather than necessarily extend it, the problem of the borderline between ordinary maintenance and major extensions would disappear and the problem that the consequences of the neglect of maintenance are not reflected in a reduction in net domestic product could be avoided.
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