A government incurred expenses for its infrastructure as follows: $20 million for general repairs; $15 million to extend the life for existing infrastructure; and $18 million for additions and betterments.The government chooses to use the modified approach to record infrastructure.The infrastructure has a basis of $400 million and would be depreciated over a 40 year life,if depreciation were charged.The amount that would be shown as expense in the Statement of Activities would be:

Question

Quizplus · Accepted Answer

Under the modified approach, only the amount spent on general repairs and maintenance is recognized as an expense. Therefore, the expense for the current year would be $20 million. The $15 million spent on extending the life of existing infrastructure and the $18 million spent on additions and betterments are capitalized and added to the infrastructure's basis. As a result, the adjusted basis of the infrastructure would be $433 million. Depreciation for the year would be calculated on this adjusted basis and would be $12.25 million ($433 million/40 years). Adding the recognized expense of $20 million to the depreciation of $12.25 million gives a total amount of $32.25 million. Rounding this amount to the nearest million gives an expense of $35 million shown in the Statement of Activities. Therefore, the correct answer is B.

A Government Incurred Expenses for Its Infrastructure as Follows: $20