Expenditures as “extraordinary” or “ordinary”

As you know, extraordinary repairs and betterments are recorded as capital expenditures while maintenance and normal repairs are recorded as expenses in the period incurred.

What incentives might management have to classify expenditures as “extraordinary” or “ordinary”?

What are the ethical implications of such practices?

In each of the following situations, determine the age of each asset in either years or units, whichever is appropriate.

A. Equipment appears on the balance sheet at a cost of $28,500 with accumulated depreciation of $14,100. The salvage value was estimated at $5,000, the useful life was estimated at five years, and the straight-line method of depreciation is used.

B. The cost of the truck is $21,800 with $17,100 of accumulated depreciation. Salvage value was estimated at $2,800, and the truck would most likely be driven for 100,000 miles. The company uses the units-of-production method of depreciation.

C. Machinery was purchased for $64,500 and, at present, has accumulated depreciation of $23,220. The useful life was estimated at 10 years, with a salvage value of $9,500. The double-decliningbalance method of depreciation is used.


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