An improvement made to a machine increased its fair value and its production capacity by 25% without extending the machine's useful life. The cost of the improvement should be

Question

Quizplus · Accepted Answer

The improvement made to the machine increased its fair value and production capacity, which means it enhances the future economic benefits of the machine. Therefore, the cost of improvement should be capitalized in the machinery account as part of the cost of the asset. It should not be expensed or debited to accumulated depreciation, as it does not represent a repair or maintenance expense. Also, allocating the cost between accumulated depreciation and machinery account is not appropriate in this scenario.

An Improvement Made to a Machine Increased Its Fair Value