Question

Donovan Resources Group has been in its plant facility for 15 years. Although the plant is quite functional, numerous repair costs are incurred to maintain it in sound working order. The company’s plant asset book value is currently $800,000, as indicated below.

Original cost		$1,200,000
Accumulated depreciation		400,000
Book value		$800,000

During the current year, the following expenditures were made to the plant facility.

(a)		Because of increased demands for its product, the company increased its plant capacity by building a new addition at a cost of $270,000.
(b)		The entire plant was repainted at a cost of $23,000.
(c)		The roof was an asbestos cement slate. For safety purposes, it was removed and replaced with a wood shingle roof at a cost of $61,000. Book value of the old roof was $41,000.
(d)		The electrical system was completely updated at a cost of $22,000. The cost of the old electrical system was not known. It is estimated that the useful life of the building will not change as a result of this updating.
(e)		A series of major repairs were made at a cost of $47,000, because parts of the wood structure were rotting. The cost of the old wood structure was not known. These extensive repairs are estimated to increase the useful life of the building.

Indicate how each of these transactions would be recorded in the accounting records.

Answer 1

Debit a. Sl.no Accounts Title Plant Cash $ 2,70,000 Credit Explanation This cost to plant increases capabilities to machine. $ 2,70,000 Hence it should be capitalised to Plant b. $ 23,000 Improvement expenses Cash Improvement expenses are general expenses, which wouldn't amount to increase in any capability 23,000 Hence it should be expensed $ C. Old asset was written off and new machine was recorded. Plant - roof $ Accumulated Depreciation $ Loss on disposal $ Plant Asset Cash 61,000 19,000 41,000 $ $ 60,000 61,000 d. $ 22,000 Repair expense Cash Repair expenses are general expenses, which wouldn't amount to increase in any capability 22,000 Hence it should be expensed $ e. 47.000 Accumulated Depreciation $ Cash The cost of the old wood structure was not known. These extensive repairs are estimated to 47,000 increase the useful life of the building. Hence reduce in Accumulated Depreciation $