A government reported expenditures for infrastructure as follows: $20 million for improvements and additions; $18 million to extend the life of existing infrastructure; $16 million for general repairs.The cost of its infrastructure,excluding land,is $750 million,and the infrastructure has an estimated life of 50 years,on average.Which of the following would be the reported expense (in millions)under each of the following options?

Question

Quizplus · Accepted Answer

Depreciation approach:
Annual depreciation = (Cost of infrastructure - land) / estimated life of infrastructure 
Annual depreciation = ($750 million - $0) / 50 years = $15 million 
Total depreciation over 3 years = $15 million * 3 years = $45 million 
Reported expense = $45 million + $16 million + $20 million + $18 million = $99 million

Modified approach: 
Reported expense = $16 million + $20 million + $18 million = $54 million

Therefore, the answer is D, as it is the only option where the depreciation approach and the modified approach add up to match the reported expense total.

A Government Reported Expenditures for Infrastructure as Follows: $20 Million