capital expenditure vs. revenue expenditure

Created by srsalin 

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When should costs be expensed

when costs incurred to maintain a given level of service revenue

If useful life of the asset is increased should cost be capitalized?

yes

If Quantity of units produced are increased should cost be capitalized?

yes

if Quality of units produced is increased..should it be capitalized?

yes

When should cost be capitalized

is the useful life is increased, quality increased, or quantity increased.

additons

extension of existing assets

should additions be capitalized or expensed

capitalized

why are additons capitalized?

because a new asset is created

Improvement

substituiton of an improved asset

replacement

substitution of similar asset for an existing one

What is substituion approach used for?

for improvements and replacements

what do you recognized in the subsition approach?

recognize a gain or a loss for the difference in value

how does substition approach work?

removes the old asset from the balance sheet and capitalize the cost of the new asset.

What is "Capitalize cost of new asset" used for?

improvements and replacements

Which improvement and replacement method is used the most?

"capitalize cost of new asset"

what is charge accumulated depreciation used for

improvements and replacements

how does "charge accumulated depreciaton" work?

debit accumulated depreciation when expenditure extends the useful life asset instead of enhancing the quantity or quality of its output.

rearrangements

movement of assets to facilitate future use

are rearrangements capitalized or expensed?

they are capitalized...only over period of benefit

how should rearrangements be expensed

immediately

should repairs be expensed or capitalized?

expensed

repairs

expenditures made to maintain plant assets in operating condition.

Allowance method may be used for

repairs in order to facilitate preperation of interim financial statments

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