The purchase of a new motor for a vehicle that will increase the useful life by...
The purchase of a new motor for a vehicle that will increase the useful life by five years should be treated as:
Select one:
a. A current expense
b. Depreciation
c. An increase in the book value of the vehicle
d. A reduction in equity
Homework Answers
The purchase of a new motor for a vehicle that will increase the useful life by five years should be treated as is a capital expenditure.
When a particular expense either increases the productive capacity of an asset or increases the useful life of an asset, the expense is termed as a capital expenditure.
Due to capital expenditure, book value of the asset increases. Hence, the purchase the purchase of a new motor for a vehicle that will increase the useful life by five years should be treated as an increase in the book value of the vehicle.
Correct option is c.
Only revenue expenses lead to a reduction in equity. It is a capital expenditure and thus it does not reduce equity. It is not current expense also.
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