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The document outlines the accounting treatment for various expenditures related to assets, including additions, improvements, replacements, extraordinary repairs, ordinary repairs, and rearrangement costs. Major replacements are capitalized and depreciated over time, while ordinary repairs are expensed as incurred. The treatment for improvements and replacements involves removing the cost and accumulated depreciation of the old asset and recognizing any gain or loss.

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Honey Casiple
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37 views1 page

Scrib

The document outlines the accounting treatment for various expenditures related to assets, including additions, improvements, replacements, extraordinary repairs, ordinary repairs, and rearrangement costs. Major replacements are capitalized and depreciated over time, while ordinary repairs are expensed as incurred. The treatment for improvements and replacements involves removing the cost and accumulated depreciation of the old asset and recognizing any gain or loss.

Uploaded by

Honey Casiple
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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1.

Explain the treatment of the following items:


1. Additions
2. Improvements or betterments
3. Replacements
4. Extraordinary repairs
5. Ordinary repairs
6. Rearrangement cost

TYPE OF EXPEDINTURE ACCOUNTING TREATMENT


ADDITIONS CAPITALIZED COST OF ADDITION TO ASSET ACCOUNT
IMPROVEMENTS AND REMOVE COST AND ACCUMULATED DEPRECIATION ON OLD
REPLACEMENTS ASSET, RECOGNIZING ANY GAIN OR LOSS

CAPITALIZE COST IMPROVEMENTS/REPLACEMENTS


REARRANGEMENT AND EXPENSE COSTS OF REARRANGEMENT AND REORGANIZATION
REORGANIZATION COSTS WHEN INCURRED.
REPAIRS ORDINARY: EXPENSE COST OF REPAIRS WHEN INCURRED.

MAJOR: REMOVE COST AND ACCUMULATED DEPRECIATION OF


OLD ASSET, RECOGNIZING ANY GAIN OR LOSS. CAPITALIZE COST
OF MAJOR REPAIR.

2. Explain the accounting for major replacement.

Major repairs involve large expenditures that extend the useful life of an asset. For
example, the replacement of a building roof is considered a major repair if it allows the
building to be used beyond its normal operating life. Or, the engine in a forklift is replaced,
thereby extending the lifespan of the equipment. In accounting, major repairs are
capitalized as assets and depreciated over time.
Minor repairs do not extend the useful life of an asset, and so are charged to expense as
incurred.

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