Question

You are Chief Financial Officer for Alpha Resorts. You are reviewing the following transactions: 1. Adding...

You are Chief Financial Officer for Alpha Resorts. You are reviewing the following transactions:

1. Adding a new patio deck to the resort’s upscale restaurant, R180, 000

2. Painting the ocean side beach houses, R75, 000

3. Purchasing additional golf carts, R25, 000

4. Rebuilding the engine in the resort’s airport shuttle bus, R10, 000

5. Replacing the old air conditioning unit in the golf shop with a more efficient one, R20, 000

Your accountant has capitalized all of these items and intends to depreciate them over the appropriate asset’s remaining useful life as originally estimated

Indicate whether you agree or disagree with your accountant’s treatment of each item. In those cases where you disagree, state the proper treatment of that expenditure. Use the following table:

[TURN OVER]
Indicate whether you agree or disagree with your accountant’s treatment of each item. In those cases where you disagree, state the proper treatment of that expenditure. Use the following table:

Expenditure Agree or Disagree? Proper Treatment, if Disagree

1. Adding a new patio deck to the resort’s ocean side bar, R180,000
2. Painting 10 ocean front beach houses, R75,000
3. Purchasing additional golf carts for the club house, R25,000
4. Rebuilding the engine in the resort’s airport shuttle bus, R10,000
5. Replacing the pro shop’s old air conditioning unit with a more efficient one, R20,000

Homework Answers

Answer #1

Items of property, plant, and equipment should be recognised as assets when it is probable that: [IAS 16.7]

  • it is probable that the future economic benefits associated with the asset will flow to the entity, and
  • the cost of the asset can be measured reliably.

since all the expenditures above are adding more value to the asset and it is probable that future economic benefits will be realised from them hence accounting is correct in its treatment of capitalising the same.

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