EXPENDITURES AFTER ACQUISTION

EXPENDITURES to EXPENSE

Repairs and Maintenance:

-benefits current accounting period only;

-expenditures that simply maintain a given level of service from the asset;

-amounts are normally small(er);

-normal maintenance;

-expense these costs as they are incurred.

EXPENDITURES to CAPITALIZE

-the cost is treated as an asset (added to the original acquisition cost of the asset)

-costs incurred to achieve greater future benefits

-increases assets life, makes the asset more efficient, or increases assets capacity

Improvements/Major Repairs

Additions

Legal Defense of Intangible Assets

-if successful, add to the legal costs of the intangible asset

-if unsuccessful, expense the legal costs

Materiality

-if amount is small it will be expensed (i.e., a stapler)

QUESTION:

From page 7-3 of the VLN, expenditures after acquisition are either expensed or capitalized. The company spent money on improving their equipment and needs to capitalize the cost. To capitalize this cost means to

a. add the cost to maintenance expense and put it on the income statement.

b. add the cost to the equipment account and put it on the balance sheet.

c. add the cost to maintenance expense and put it on the balance sheet.

d. add the cost to the equipment account and put it on the income statement.