Question

Which of the following is not a capital expenditure?

a. repairs that maintain an asset in operating condition

b. an improvement

c. an addition

d. a rearrangement

Answer 1

Answer: A) Repairs that maintain an asset in operating condition

Explanation:

Expenses that are incurred for the purpose of improving the productivity of asset or extending the useful life of assets are called capital expenditures. Expenses that are incurred to maintain existing operating condition or productivity is not considered as capital expenditure.

Repairs that maintain an asset in operating condition is not a capital expenditure because these expenses does not result in extension of estimated useful life of the asset or increased expected productivity. of the asset. These expenses are incurred to maintain expected performance and does not result in increasing performance beyond expected level.

Improvement, Addition and Rearrangement are capital expenditures because these expenses results in either extension of useful life of asset or improvement of expected productivity of asset