The natural reaction here is to tell you the answers without saying why but I think that its better that people understand the logic behind why things are capitalised or expensed.
Lets take the two questions seperately.
a) Printer Repair.
there are only three reasons why subsequent expenditure on an asset may be capitalised rather than expensed :
1) In enhances the economic benefits beyond that previously applicable
2) It restores the previously consumed economic benefits of the asset
3) It replaces a seperately depreciated component of the asset.
Therefore the cost of fixing a printer fails all of the above so must be an expense.
b) Premises insurance
Insurance for the new premises could only be capitalised as part of the cost of the premises if such were an integral part of the purchase. For example where the purchase of a TV and warranty would not have been available to purchase seperately the warranty may be considered part of the purchase price.
The general rule is that the purchase price includes all those costs incurred in bringing the asset to the location and condition of intended use including where a legal obligation exists at outset the cost of site restoration.
The insurance does not fit within that as it may be purchased seperately and is not integral to the purchase therefor it is an expense (and a recurring one at that).
Also note that if it goes over a period end the expense will need to be divided down between the current and subsequent period with a prepayment recognised at the period end.
c) Conclusion.
both examples given are operating expenses (sometimes referred to as Revenue expenditure). Neither would be capitalised.
bit consused as to the wording of your question as capital expenditure and fixed asset expenditure are the same thing? Are you sure that you have copied the question out correctly?
what book is this from?
kind regards,
Shaun.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
First draft of my response I was coming to the answer from a similar angle to yourself but the question itself seems confused so wanted to give the poster a bit more info as their study material doesn't seem right to me (assuming that its been copied out properly).
All the best,
Shaun.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
