Mento,Inc.spent $3,000,000 during 2011 to repair and update its plant assets.Mento spent $1,200,000 to paint the building, $230,000 to place worn-out gears on motors, $640,000 to install special shelving that will increase operating efficiency in the plant, and $930,000 on new machinery.What amount of these costs would appear as assets on Mento, Inc.'s December 31, 2011 statement of financial position?

Question

Quizplus · Accepted Answer

Only the costs that improve or extend the useful life of the plant assets would be capitalized as assets. The painting of the building would be considered a maintenance expense and not increase the useful life, therefore it would not be capitalized. The cost of placing worn-out gears on motors would be considered a repair expense and not improve or extend the useful life, therefore it would not be capitalized. However, the installation of special shelving and the purchase of new machinery would increase efficiency and extend the useful life of plant assets, therefore they would be capitalized. Therefore, $640,000 + $930,000 = $1,570,000 would appear as assets on Mento, Inc.'s December 31, 2011 statement of financial position.

Mento,IncSpent $3,000,000 During 2011 to Repair and Update Its Plant