Question

E10-19 Distinguishing capital expenditures from revenue expenditures Coasider the following expenditures: comp ty Learr a. Purchase price. h Ordinary recurring repairs to keep the machinery in good working order. Lubrication before machinery is placed in service. d Periodic lubrication after machinery is placed in service. Major overhaul to extend useful life by three years. f. Sales tax paid on the purchase price. a. Transportation and insurance while machinery is in transit from seller to buyer h. Installation. i. Training of personnel for initial operation of the machinery. Classify each of the expenditures as a cap tal expenditure or a revenue expenditure related to machinery.

Answer 1

Answer copirou Expenditure :- It is an amount spend 10 aramure (ory cignificantlig improve the capacity con capabilities of an asset. ed Revenue Expenditue. Revenue Expenditure ore extra exponges in m because of an aget, but thiry dort- add any additional value to the asset for increase its welu lile on produchung a) Purchase price is a capital expenditure b Ordmany recurring repains to keep the machinery in good working order es a Revenue expenditure because it doen improve the copacity of an asset- ces Lubncation before machinary is placed in service is a capital expenditure because it is included in the cost of the asset. di penodic luncation after machinery is placed in sonce is a revenue expenditure because these expenge keeps the asset in working order only it does not increase the capacity. ces mover overhaul 10 eytend useful life by three yeay is a capital eipenditure because it are increase the life of the alsot. is sole tax paid on purchase price is a capital Expenditure because it is included in cosle of asset. (9) Transporation and insurance while machinery is in tranfit from seller to buyer is o capital expenditure. It is also mcluded in cost of amet. che installaton is a capital expenditure became it is an initiau cost. (I) Training of personnel for mutial operation of the machi nony as a capital expenditure,