1. ordinary repairs, extraordinary repairs and betterments Explain the differenc
ID: 2571064 • Letter: 1
Question
1. ordinary repairs, extraordinary repairs and betterments
Explain the difference between ordinary repairs, extraordinary repairs and betterments, be sure to give an example of each.
Which are Capital Expenditures and which are Revenue Expenditures
How is each recorded in the accounting records?
How does each affect the Income Statement?
How does each affect the Balance Sheet
2. Capital Expenditures vs Revenue Expenditures
Explain the difference between Capital Expenditures and Revenue Expenditures
How is each recorded in the accounting records?
How does each affect the Income Statement?
How does each affect the Balance Sheet
3. Land and Land Improvements
Explain the difference between between Land and Land Improvements?
How does depreciation affect Land or Land Improvements in your accounting records?
4. Amortization, Depletion, Depreciation and Impairment
Explain the difference between Amortization, Depletion, Depreciation and Impairment?
Which type of asset would each apply to?
Which depreciation methods can you apply to each?
Explanation / Answer
1. Ordinary Repairs - Ordinary repairs are maintenance costs incurred by the company which is necessary to keep machinery or other assets functioning, and are usually anticipated by the initial estimate management makes about the asset's useful life. Whereas, extraordinary repairs are the extensive maintenance work incurred by the company which enable the company to increase the useful life of asset (generally by over a year). Extraordinary costs are the infrequent costs of the company. On the other hand, betterments refer to the improvements made to an asset which increases the efficiency of that asset or replacing an old part with much powerful or efficient one. Betterment help in increasing the productivity level of the asset.
For Example - Consider you have purchased a car for $50,000. Now, chaging the brake oil or giving the car for service are the ordinary costs required to be incurred in the normal course for smooth running of car. However, if you have replace the engine of car after say 3 three years which will enable the car to be useful for more 10 years. Then such cost of changing the engine is an extraordinary cost. Now, if you have changed the tyres of the car so that it can give more mileage, then such cost is a betterment since it will help the car in being more efficient.
Ordinary repairs are revenue expenditure while Extraordinary repairs & Betterment are capital expenditures. Ordinary repairs will be expensed out in the year in which they are incurred and therefore will reduce the profits of that year. Extraordinary repairs & betterments are added to the book value of asset in balance sheet and therefore, will be charged in the form of depreciation in income statement.
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