Question

A company purchases a remote site building for computer operations. The building will be suitable for operations after some expenditures. The wiring must be replaced to computer specifications. The roof is leaky and must be replaced. All rooms must be repainted and recarpeted and there will also be some plumbing work done. Which of the following statements is true?
a) The cost of the building will not include the repainting and recarpeting costs.
b) The cost of the building will include the cost of replacing the roof.
c) The cost of the building is the purchase price of the building, while the additional expenditures are all capitalized as Building Improvements.

Answer 1

Answer:

b) The cost of the building will include the cost of replacing the roof.

Explanation:

As for the information provided,

We know that the capital expenditure is capitalized and that the revenue expenditure is provided in income statement.

The capital expenditure is added in the cost of fixed assets and then depreciated as part of it.

The entire replacement of roof will be a huge part of consideration of building, and is capital in nature. Thus, it shall be part of cost of building.

Remaining all expenses are not capital in nature.