Question

Exercise 6.10 Capitalizing versus expensing For each of the following expenditures, indicate LO 2 the type of account (asset or expense) in which the expenditure should be recorded. Explain your answers. a. $3.700 for repairing damage that resulted from the careless unloading of a new machine. b. $25,300 cost of designing and registering a trademark. c. S14.600 in legal fees incurred to perform a title search for the acquisition of land. d. 55,100 cost of patching a leak in the roof of a building. e. $325,000 cost of salaries paid to the research and development staff.

Answer 1

Answer) As per GAAP the expenditure incurred for the fixed assets or PPE upto stage put to use the total expenditure is added to the that asset value. It means capitalise the expenses. or other wise expenditure will be expensed off for above reason a) the repair expenditureof $3,700/- should be capitalised b) incase of intangible assets also this rule applies so that the trademark reg. charges also added to the value of trademerks i.e $ 25,300/- capitalised c) $ 14,600/- also added to the value of land it is also capitlaise the expenses. d) Patchwork of abuilding is revenue in nature so that $ 5,100 expenditure transfer to profit and loss account e) salaries paid to reserch and development staff would be of two types i) paid upto the stage of development expense off ii)during and after the stage of development is capitalised that asset. so we can assume that the salaries upto development satge so that $325,000 is transferred to p&L account