Multiple Choice
Which of the following statements about ordinary repairs is FALSE?
8. Long Lived Assets
Ordinary Repairs vs. Capital Improvements
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Which of the following is not a capital expenditure?
A
Replacing an old motor with a new motor in a factory machine
B
The addition of a new wing to a building
C
An overhaul of the company's heating system
D
A tune-up of a company truck
E
The cost of installing equipment
Verified step by step guidance1
Understand the definition of capital expenditure: Capital expenditures are funds used by a company to acquire, upgrade, and maintain physical assets such as property, industrial buildings, or equipment. These expenditures are capitalized, meaning the cost is spread over the useful life of the asset.
Identify the nature of each option: Determine whether each option involves acquiring, upgrading, or maintaining a long-term asset.
Analyze 'Replacing an old motor with a new motor in a factory machine': This is an upgrade to an existing asset, which extends its useful life or improves its efficiency, thus qualifying as a capital expenditure.
Consider 'The addition of a new wing to a building': This is an addition to a long-term asset, increasing its value and utility, and is therefore a capital expenditure.
Evaluate 'A tune-up of a company truck': This is a routine maintenance activity that does not extend the useful life or improve the efficiency of the asset significantly, thus it is not a capital expenditure but rather an operating expense.
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