Claire owns and operates a veterinary surgery. During the year ended 30 June 2020 she incurred the following expenditure: 10 August 2019 Re-plumbing of surgery due to faulty pipes $4,700 16 October 2019 Replace linoleum floor in surgery due to water damage from burst pipe $1,800 2 December 2019 Painting worn exterior of surgery $5,600 1 March 2020 Sealing surgery car park which was previously dirt $15,400 Explain: The treatment of repairs versus capital improvements using the above facts. Calculate the total deductions available to Claire for the year ended 30 June 2020 are (to the nearest dollar):
Answer :
Generally repair expenditures are capitalised if they result in an improvement which renders the asset like a new one and depreciation will be charged on the capitalised amount.
Hence, following expenditures shall be capitalised
| Re- plumbing due to faulty pipes | $4700 |
| Replacement of linoleum floor | $1800 |
| Total | $6500 |
| Assuming a 10% depreciation rate, the amount of dep will be (6500*10%) | $650 |
Following repair expenditures shall be charged off to profit or loss
| Painting | $5600 |
| Selling of car park | $15400 |
| Total | $21000 |
Hence, total amount of deductions available to Claire is $650 + $21000 = $21650
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