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29 July, 21:45

Your supervisor has come to you with the following list of expenditures for the year and is asking you whether they should be capitalized or expensed as repairs and maintenance. Indicate all of the expenditures that would most appropriately be capitalized. 1. Repainted the office building.

2. Added a new wing onto the office building.

3. Took their fleet of cars in for servicing (changing the oil, etc.).

4. Added newer electronic locks on the doors in the production building.

5. Had an engine rebuilt in one of their fleet cars.

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  1. 29 July, 22:01
    0
    1. Repainted the office building: This should be capitalized.

    2. Added a new wing onto the office building: This should be capitalized.

    3. Took their fleet of cars in for servicing (changing the oil, etc.).: This should be expensed.

    5. Had an engine rebuilt in one of their fleet cars: This should be capitalized.

    4. Added newer electronic locks on the doors in the production building: This should be expensed.

    Explanation:

    1. Repainted the office building: This should be capitalized. This is because repainting is a repair that will restore the physical structure of the office building and significantly improve it. Since it is a capital improvement cost, it should be capitalized and depreciated like other fixed assets.

    2. Added a new wing onto the office building: This should be capitalized and depreciated like other fixed assets since it is a capital expenditure that significantly added to the structure of the office building.

    3. Took their fleet of cars in for servicing (changing the oil, etc.).: This falls under repair and should be expensed.

    4. Added newer electronic locks on the doors in the production building: This should be expensed. Cost of locks and keys are ordinary expenses that do not improve the physical structure of the production building.

    5. Had an engine rebuilt in one of their fleet cars: This should be capitalized. It is a tangible improvement to the fleets of cars and this kind of costs fall under capital expenditures.
  2. 29 July, 22:12
    0
    Adding a new wing and rebuilding an engine in one of the cars are expenses which are to be capitalized.

    Explanation:

    First identify which of the following tasks can be capitalized:

    For the office repaint, it can not be capitalized as it is a maintenance cost.

    For the addition of new wing to the office, it can be capitalized as it has a life of more than one year.

    For the cars taken out for the servicing, the expenditure is already made and thus is not a capitalized expenditure, it is a revenue expenditure.

    For addition of newer electronic locks on the doors of the production building, the expenditure is already made and thus it is also a revenue expenditure.

    For the engine rebuilt in one of the car is resulting in an asset which has a life of more than 1 year.

    So Adding a new wing and rebuilding an engine in one of the cars are expenses which are to be capitalized.
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