Should improvements for infrastructure assets that do not enhance functionality be capitalized?

The rationale for capitalizing improvements to infrastructure assets hinges primarily on whether those improvements enhance the functionality of the asset. When evaluating whether to capitalize an improvement, it is essential to determine if the enhancement increases the asset's service potential or extends its useful life.

Improvements that do not enhance functionality merely maintain the asset's current state or restore it to working order but do not add value beyond what it originally possessed. Therefore, such costs would typically be expensed in the period incurred, as they do not meet the criteria for capitalization under generally accepted accounting principles (GAAP).

Capitalization is reserved for costs that significantly extend the asset's useful life or improve its capacity, efficiency, or overall value. This approach aligns with the principle of matching expenses to the revenues they help generate, ensuring proper financial reporting and accountability in public sector finances.