Question

11) Jack owns two motels in New York and travels to Boston to discuss purchasing another motel.

Jack incurred the following expenses: $1,000 Travel, $1,200 Accounting fees, and $4,800 Marketing studies.

A)What amount if any can Jack deduct as expenses if he decides not to purchase the motel?

B) What amount if any can Jack deduct as expenses if he decides to purchase the motel?

Answer 1

11) When any one wants to purchase new model all the expenses related to that procedure can be defined as capital expenditure and in future they all are capitalised. But when businessmen decide not to purchase the model then the expenses related to that model will not be capitalised and will write-off in profit and loss accounts.

In the present case Jack has travel and other expenses in which he have two cases

Case A) If Jack decides not to purchase the model then he deduct full amount of $7000 as expenses and ain year end he should write-off these expenses in profit and loss account.

Case B) If Jack decide to purchase the model then he will capitalised all the expenses And all expenses of $7000 treated as Capital expenses.