Repairs and Improvements

Repairs and Improvements - to increase the asset's...

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Repairs and Improvements Expenses relating to depreciable assets fall into two broad categories: ordinary  expenditures and capital expenditures.  Ordinary expenditures  include normal repairs,  maintenance, and upkeep. The costs associated with these items are considered  normal operating expenses, and they are recorded by debiting expense accounts and  crediting cash or another appropriate account.  Capital expenditures  increase an  asset's usefulness or service life, and they are recognized by increasing the asset's net  book value.  There are two ways to increase an asset's net book value: the asset account can be  debited, thus increasing the recognized cost of the asset, or the asset's corresponding  accumulated depreciation account can be debited, thus decreasing the amount of  depreciation previously allocated to the asset. If the capital expenditure serves primarily 
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Unformatted text preview: to increase the asset's usefulness or value, the asset account should be debited. On the other hand, if the capital expenditure serves primarily to increase the asset's useful life or salvage value, the accumulated depreciation account should be debited. Such judgments are not always clear cut, and discussions about the best way to record capital expenditures are usually covered in more advanced accounting courses. Nevertheless, you should be prepared to see capital expenditures recorded in either the asset account or the asset's accumulated depreciation account, and you should recognize that the effect on the asset's net book value is the same either way. Consider how a $10,000 capital expenditure changes the truck's net book value....
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This note was uploaded on 11/14/2011 for the course ACCT 1310 taught by Professor Staff during the Fall '10 term at Texas State.

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