Question

Bill's Wrecker Service has just completed a minor repair on a tow truck. The repair cost was $1,150, and the book value prior to the repair was $5,100. In addition, the company spent $6,000 to replace the roof on a building. The new roof extended the life of the building by five years. Prior to the roof replacement, the general ledger reflected the Building account at $90,800 and related Accumulated Depreciation account at $39,000. Required After the work was completed, what book value should appear on the balance sheet for the tow truck and the building? Book Value Tow Truck Building

Answer 1

Repair cost of $ 1,150 is a revenue expenditure as it is mentioned in the question that it is as minor repair and minor repairs are not capitalized, they are treated as expenditures in Income and Expenditure. Therefore, Book Value of Tow Truck would be $ 5,100 New roof replaced is a capital expenditure as it has extended the life of the building by 5 years. Therefore, cost of new roof should be capitalized in the books of accounts Therefore, Book Value of Building would be ($ 90,800 + $ 6,000) $ 96,800 Accumulated Depreciation thereon $ 39,000 Net Value $ 57,800 Tow Truck Building Book Value Net Value $ 5,100 $ 5,100 $ 96,800 $ 57,800

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