Multiple Choice
Which of the following is an example of a capital improvement?
8. Long Lived Assets
Ordinary Repairs vs. Capital Improvements
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Which of the following expenses would NOT be considered an ordinary repair?
A
Replacing a broken window pane
B
Fixing a leaky faucet
C
Installing a new roof to extend the building's useful life
D
Repainting a faded wall
Verified step by step guidance1
Understand the concept of ordinary repairs: Ordinary repairs are expenses incurred to maintain the normal operating condition of an asset. These repairs do not significantly increase the asset's value or extend its useful life.
Analyze each option provided in the problem: Replacing a broken window pane, fixing a leaky faucet, and repainting a faded wall are all examples of ordinary repairs because they restore the asset to its original condition without enhancing its value or extending its useful life.
Identify the expense that does not fit the definition of ordinary repairs: Installing a new roof to extend the building's useful life is not considered an ordinary repair because it improves the asset and extends its useful life, making it a capital expenditure.
Differentiate between ordinary repairs and capital expenditures: Ordinary repairs are expensed immediately, while capital expenditures are capitalized and depreciated over time. This distinction is crucial for proper financial reporting.
Conclude that the correct answer is 'Installing a new roof to extend the building's useful life,' as it does not meet the criteria for ordinary repairs and is instead classified as a capital expenditure.
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