Question

Question 2 Large Mart owns a computer (accounted for in account number 167 “Computers”) to track the inventory in its warehouse in Armidale. On 1 June 20x1, the computer breaks down, and Large Mart spends $500 to repair the computer. Required: A) State whether the repair of the computer creates an asset, a liability, income, an expense or equity in the financial accounts of Large Mart.(1 mark) B) Explain your decision based on the criteria that the conceptual framework uses to define the item that is created by the repair of the computer, and describe how each criterion is fulfilled by the outlined situation.

Answer 1

A. Repair of a computer create an expense to financial accounts of Large Mart.

B.It doest not increase asset or liability and even equity.it is incurred for maintaining a fixed asset. It is a revenue nature of expense. Revenue natue of expense incurred for day to day operation and benefit of it can enjoy for short term.

Repair of computer does not increase the earning capacity of it, but it maintaining its working condition. It neither asset purchased nor replaced the asset.

If it is capital nature it may increase asset and earning capacity of an asset.benefit of capital nature expense enjoy long term benefit and it increase the assets

But repair of a computer only maintaing current level of working condition.