Capital versus Revenue Expenditure}

Waleed Company, a privately owned business, supplies water to several communities. Waleed has just performed an extensive overhaul on one of its water pumps. The overhaul is estimated to extend the life of the pump by 10 years. The residual value of the pump is unchanged. You have been asked to determine which of the following costs should be capitalized as a part of this overhaul. Those costs not capitalized should be expensed.

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CONCEPTUAL CONNECTION Classify each cost as part of the overhaul or as an expense. Be sure to explain your reasoning for each classification

\section*{OBJECTIVE 5 Exercise

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Element of Cost New pump motor Repacking of bearings (performed monthly) New impeller Painting of pump housing (performed annually) Replacement of Pump Foundation New wiring (needed every five years) Installation labour, motor Installation labour, impeller Installation labour, wiring Paint labour (performed annually) Placement of fence around pump* Classification Explanation