An expenditure made in connection with a machine being used by a company to produce inventory should be:

	a	Expensed immediately if it improves the efficiency of the machine but does not extend the useful life.
	b	Expensed immediately if it extends the useful life of the machine but does not improve the efficiency.
	c	Capitalized if it improves the efficiency of the machine or extends the useful life.
	d	Capitalized if it maintains the machine in normal operating condition.

QUESTION 11

ABC Hotel Corporation recently purchased XYZ hotel and the land on which the XYZ hotel is located with the intention to tear down the XYZ hotel and build a new luxury hotel on the land. The cost of the XYZ hotel should be:

a		Capitalized as part of the cost of the land.
b		Capitalized as part of the cost of the new hotel.
c		Expensed immediately.

Which of the following most accurately reflects the concept of depreciation as used in accounting?

a		The process of allocating the cost of tangible assets to expense in a systematic and rational manner to those periods expected to benefit from the use of the asset.
b		The process of charging the decline in value of an economic resource to income in the period in which the benefit occured.
c		An accounting concept that allocates the portion of the asset used up during the year to a contra-asset account (accumulated depreciation) for the purpose of properly recording the fair market value of tangible assets.