Betterment versus Maintenance Expenditures. During the year, the company made the following expenditures relating to plant, machinery, and equipment:
• Completed regularly scheduled repairs at a cost of $250,000.
• Overhauled several stamping machines at a cost of $500,000 to improve production efficiency.
• Replaced a broken cooling pump on a 100-ton press at a cost of $25,000.
Question:
Identify which expenditures should be expensed as a maintenance expense or capitalized as a betterment outlay.
As per standard:
An item of plant, property and equipment should be capitalized if and when meets recognized criteria.
1. It is probable that future economic benefits associated with the item of PPE will flow to the entity (improve productive efficiency)
2. cost of item of PPE can be measured reliably
| Regular repairs | mere repairs and replacements are not capitalised because it won't meet recognition criteria | Maintenance expenses |
| Overhauling | Economic benefits will flow to the entity | Capitalised |
| Replacement | replacement of item are regular in nature, doesn't meet recognition criteria. | Maintenance expenses |
Betterment versus Maintenance Expenditures. During the year, the company made the following expenditures relating to plant,...
Belltone Company made the following expenditures related to its 10-year-old manufacturing facility: The heating system was replaced at a cost of $250,000. The cost of the old system was not known. The company accounts for improvements as reductions of accumulated depreciation. A new wing was added at a cost of $750,000. The new wing substantially increases the productive capacity of the plant. Annual building maintenance was performed at a cost of $14,000. All of the equipment on the assembly line...