New Mexico Administrative Code
Title 2 - PUBLIC FINANCE
Chapter 20 - ACCOUNTING BY GOVERNMENTAL ENTITIES
Part 1 - ACCOUNTING AND CONTROL OF FIXED ASSETS OF STATE GOVERNMENT, ACCOUNTING FOR ACQUISITIONS AND ESTABLISHING CONTROLS
Section 2.20.1.13 - BETTERMENTS AND REPLACEMENTS

A. Betterments to assets should be capitalized. If the asset consists of identifiable and separately valued components, and a component is improved, the old component should be removed from the asset account, and the new component added to the asset account.

B. Replacements of components, which simply increase the useful life of the asset, should be substituted for the previous component, and the useful life and amount then used for depreciation. The new component should be recorded inclusive of all costs as described in of Section 2.20.1.10 NMAC. For example, an aircraft has its engines replaced at a cost of three hundred thousand ($300,000). The old engines should be removed from the books along with accumulated depreciation and the gain or loss on disposal. The new engines are then recorded, and added to the asset with a new useful life and basis for depreciation.

C. Reinstallation and rearrangement costs of machinery, rearrangement of partitions, renovation of buildings, and similar outlays on fixed assets purchased in used condition should be capitalized as part of the cost. Overhead items such as insurance, taxes, salaries and other incidentals directly related to the asset during a period of renovation also should be capitalized.