A firm expects to use a delivery truck for five years. At the end of three years,

Question:

A firm expects to use a delivery truck for five years. At the end of three years, the transmission wears out and requires replacement at a cost of $4,000. The firm argues that it should capitalize the expenditure because without it the useful life is zero and with it the useful life will be another three years. Comment on the firm’s reasoning relative to U.S. and IFRS.

GAAP
Generally Accepted Accounting Principles (GAAP) is the accounting standard adopted by the U.S. Securities and Exchange Commission (SEC). While the SEC previously stated that it intends to move from U.S. GAAP to the International Financial Reporting Standards (IFRS), the...