Question

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 house, 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 condition unit with a more efficient one, R20,000

Answer 1

1) Adding a new patio deck to the resort's ocean side bar, R180,000 - Agree as the new patio deck will increase the value of the resort and can be depreciated over years.

2) Painting 10 ocean front beach house, R75,000 - Disagree. The life of the ocean front beach house will not be increased by the painting, hence it should be considered as a maintainance expense.

3) Purchasing additional golf carts for the club house, R25,000 - Agree as the golf carts can be depreciated over years.

4) Rebuilding the engine in the resort's airport shuttle bus, R10,000 - Disagree. This should be considered as repair expense.

5) Replacing the pro shop's old air condition unit with a more efficient one, R20,000 - Agree as the aircondition unit can be depreciated over years.