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Calculating Repair and Maintenance Expense The Camelback Cement Company made the following expenditures relating to its...

Calculating Repair and Maintenance Expense

The Camelback Cement Company made the following expenditures relating to its plant and equipment:

Overhauled several machines at an aggregate cost of $175,000 to improve the efficiency of the equipment over its remaining useful life.

Replaced a broken driveshaft on a forklift at a cost of $30,000.

Completed regularly scheduled repairs at a cost of $75,000.

Installed a foam roof on the plant over the existing, but leaking, flat-rolled roof at a cost of $200,000.

Solutions

Expert Solution

Repair and Maintainence Expense:

1. $0, Because any cost incurred which increases the efficiency of a equipment over its useful life over its normal capacity, shall be termed as Capital Cost and to be added as a Part of cost and will be depreciated over the balance remaining useful life of asset.

2. $30,000, Because replacing a defective component of an asset definitely increases efficiency compared with defective product, but does not increases its effeciency over its general capacity.Hence any such cost incurred to replace a broken item shall be Revenue expense hence to be included in Repairs and Maintainence Expense.

3. $75,000, Because Regular repairs are done to prevent the assets from breakdown and assets works at its full capacity but these does not enhance their capacity. Hence they are Revenue Expense in nature therefore shall be included in Repairs and Maintainence Expense.

4. $200,000, Because any expenditure incurred by assesee in respect of repairing the asset, whether be repairing cost incurred or use of any substitute choice to repair such defect like Installing a foam roof over existing to remove leakage (defect), shall be allowed as expenditure hence they shall be covered in Repairs and Maintainence Expense.

ekkarill92 answered 1 year ago
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