ExpertMedium2 marksMultiple Choice
ACCA · Question 04 · Recording transactions and events
Titanium Forge Co, a heavy manufacturing firm, recently incurred the following costs:
- $50,000 for a major overhaul of a blast furnace that extends its useful life by 5 years.
- $5,000 for routine monthly maintenance of the furnace.
- $12,000 to repaint the factory exterior.
What is the total amount of capital expenditure?
Titanium Forge Co, a heavy manufacturing firm, recently incurred the following costs:
- $50,000 for a major overhaul of a blast furnace that extends its useful life by 5 years.
- $5,000 for routine monthly maintenance of the furnace.
- $12,000 to repaint the factory exterior.
What is the total amount of capital expenditure?
Answer options:
A.
$50,000
B.
$55,000
C.
$62,000
D.
$67,000
How to approach this question
Identify which costs enhance the asset's earning capacity or extend its life (capital) vs those that maintain its current capacity (revenue).
Full Answer
A.$50,000✓ Correct
Capital expenditure results in the acquisition of non-current assets or an improvement in their earning capacity. The $50,000 overhaul extends the life of the furnace. The $5,000 maintenance and $12,000 repainting merely maintain the existing capacity and are revenue expenditures.
Common mistakes
Capitalizing routine maintenance or cosmetic repairs.
Practice the full ACCA FA — Financial Accounting Practice Exam 2
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