1. Are the amounts at which fixed assets are reported in the balance sheet their approximate...

1. Are the amounts at which fixed assets are reported in the balance sheet their approximate market values as of the balance sheet date? Discuss.

2. Immediately after a used truck is acquired, a new motor is installed and the tires are replaced at a total cost of $5,750. Is this a capital expenditure or a revenue expenditure?

Expert Solution

Answer(1): No,

Assets represent ownership, assets are something with value. Fixed assets are the tangible assets that can be seen and touched such as Plant, machinery, equipment, land, building etc. Fixed assets are used for manufacturing and production purpose.

Fixed assets such as plant, machinery and equipment are reported on the cost or historical value less depreciation. Depreciation is the decrease in the value of assets as the time passes. As the time passes, fixed assets lose the value due to wear and tear that is the reason depreciation is charged and deducted from the cost of fixed assets. Depreciation is a non cash expense.

Land on the other hand is reported on the market value because it gets appreciated not depreciated.

Answer(2): This is a capital expenditure.

Capital expenditure- It is the amount that is spent on buying the physical/fixed assets or to upgrade the same.

Above is the capital expenditure because it is enhancing value and capacity of truck which will be utilized over a long period in its life.

ekkarill92 answered 1 year ago

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