Question

Question 3                                                    
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:

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

Answer 1

Expenditure	Agree or Disagree?	Proper Treatment, if Disagree
1. Adding a new patio deck to the resort’s ocean side bar, R180,000	Agree
2. Painting 10 ocean front beach houses, R75,000	Disagree	It is regular upkeep expenditure and can be written off as maintenance expenditure.
3. Purchasing additional golf carts for the club house, R25,000	Agree (golf carts can be used over a period of time).
4. Rebuilding the engine in the resort’s airport shuttle bus, R10,000	Disagree	It would be treated as repair expense.
5. Replacing the pro shop’s old air conditioning unit with a more efficient one, R20,000	Agree