Spacefit Ltd is public company listed on the ASX. The company owns and manages several office

buildings in Adelaide. In $203$ they upgraded several of the furniture and fixtures in the buildings that

operate as co$-$working spaces. The cost of the upgrade was $$800,000.$ This amount is considered

material for the company. The accountant for Spacefit Ltd must decide how they will account for this

expenditure in the company's financial statements for the financial year ended $30$ June $20$X$3.$

Additional information

It is expected that the furniture and fixtures will have a useful life $5$ years.

Spacefit Ltd will be responsible for repairs and maintenance of the fixtures and fittings over the

life of the contract.

Executive directors of Spacefit Ltd receive an annual bonus when profit exceeds $15\%$ of total

assets.

The company's long$-$term debt agreement restricts borrowing to a maximum of $70\%$ of total

assets.

Required:

Explain the general process of applying accounting policies to accounting transactions and

events. When answering this question, you should:

$($i$)$ Identify the four components of accounting policy choice, and

$($ii$)$ Explain the role of the Conceptual Framework in applying this process.

Explain how the expenditure on fixtures and fittings should be accounted for by Spacefit Ltd

for the year ended $30$ June $203$ in accordance with the Conceptual Framework. Write any

journal entries required. Include references from relevant paragraphs in the Conceptual

Framework to support your answer.

Consider the implications of accounting theory for accounting policy choice and explain

whether the Board would be happy with the accounting treatment you have selected in your

answer to question $2.$