Accounting, Reporting & Tax
Accounting for Dry-docking Costs
Summary
Dry-docking and major inspections can be capitalised when they meet IAS 16 recognition and inspection-component requirements.
Why this matters in ship finance
Misclassifying periodic survey expenditure can distort operating profit, vessel carrying values and maintenance-capital forecasts.
The concept
IAS 16 requires significant inspection costs to be recognised in carrying amount when criteria are met, with the remaining carrying amount of a previous inspection component derecognised.
How it is used in practice
Track dry-dock intervals, inspection components, cash expenditure, remaining amortisation and off-hire periods by vessel.
Practical issues
Routine repairs and maintenance are not automatically capital expenditure. Accounting capitalisation must be distinguished from cash-flow maintenance spending.
How ShipFinance.ai uses this concept
Generate dry-dock component schedules that reconcile accounting depreciation and financing cash needs.
Key takeaways
- Capitalise qualifying major inspections; expense routine repairs.
- Derecognise the previous inspection component when replaced.
- Track cash maintenance separately from accounting depreciation.