Bill’s Wrecker Service has just completed a minor repair on a tow truck. The repair cost was $1,050, and the book value prior to the repair was $5,070. In addition, the company spent $9,000 to replace the roof on a building. The new roof extended the life of the building by five years. Prior to the roof replacement, the general ledger reflected the Building account at $92,000 and related Accumulated Depreciation account at $41,200.
Required
After the work was completed, what book value should appear on the balance sheet for the tow truck and the building?
Repair cost of $1,050 is revenue expenditure. It will not increase the book value of Tow Truck.
Book value of Tow truck before repair work = $5,070
Book value of Tow truck after repair work = $5,070
$9,000 spent to replace the roof of the building is a capital expenditure, since it increases useful life of the nuilding.
| Cost of building before work | 92,000 |
| Add : Cost of roof | 9,000 |
| Less : Accumulated depreciation | -41,200 |
| Book value of building after work | $59,800 |
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