Question

TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false. 1) The term "plant assets" refers to long-lived assets acquired for use in business 1) operations, rather than for resale to customers. 2) If a piece of equipment is dropped and damaged during installation, the cost of 2) repairing the damage should be added to the cost of the equipment. 3) Sales tax on equipment is not part of the acquisition cost and should not be 3) capitalized. 4) To "capitalize" an expenditure means to charge it to an asset account. 4) 5) A revenue expenditure is recorded in an expense account. 5)

Answer 1

Answer: 1. True

2. False

3. False

4. True

5. True

Explanation:

1) The term "plant assets" refers to long-lived assets acquired for use in business operations, rather than for resale to customers.

- True.

These are fixed assets that are to be used in the business for operations and not assets to be sold to the public.

2) If a piece of equipment is dropped and damaged during installation, the cost of repairing the damage should be added to the cost of the equipment.

- False

Only expenses related to the Acquisition and Installation of the asset should be capitalized as well as extraordinary repairs. Every other expense should be treated as revenue Expenditure and taken to the income statement.

3) Sales tax on equipment is not part of the acquisition cost and should not be capitalized.

- False

Sales Tax should be capitalized as it is considered a cost of Acquisition as it is part of the money a company pays for an asset.

4) To "capitalize" an expenditure means to charge it to an asset account.

-True

When an expenses is said to be Capitalized, it is to be charged or rather debited to an asset account as part of the asset.

5) A revenue expenditure is recorded in an expense account.

- True

Revenue Expenditure are meant to serve an asset for a short period of time and as such are expensed in the period they are incurred. They are expensed normally and put into an Expense account.

Answer 2

Answer:

1. T

2. T

3. F

4. T

5. T

Explanation:

Cost of equipment usually contains the cost in acquiring the equipment and the cost accumulated in putting the equipment into work( such include installation and an repairs done during that).

Sale tax is a part of acquisition cost.

item are usually capitalized when it is recorded as an asset, instead of an expense. What this shows is that expenditure would be in the balance sheet, instead on the income statement.