Hi,

To expense an item or not affects the taxable profit for the year. As such there are stringent rules as to when an item may be expensed and when it may be capitalised.

On occasion there is a choice as to whether you expense or capitalise. For example, for research and development costs where certain criteria are met you may either capitalise so that costs are set off against future profits or expense which will set be set off in the current financial period.

The rules for when to capitalise are outlined in FRS15 which looks at Tangible fixed assets, specifically depreciation.

The principles of the Matching (accruals) concept (Expenditure to be matched against the income to which it relates) is to be found in FRS18 (accounting Principles).

Basic bookkeeping studies do not tend to name the standards but the basic principles of Accruals, Going concern, Consistency and prudence are all covered under FRS18 and it is definitely worth a read.

For something like tools I think generally one should apply common sense. For example, take the humble stapler. It's cost is obviously insignificant even though it will be used in the business over a long period of time therefore one would expense that as stationary rather than capitalise, even though such does not allocate it's expense against the period of it's useful economic life (as required by FRS15).

A lot of tools would fall into the same category as a stapler. However, something substantial such as cement mixer would be capitalised over it's useful economic life therefore allocating the expenditure against the income to which it relates.

For further reading refer to FRS15, FRS18, SSAP13 and UK GAAP.

Hope that the above helps.

Shaun.