A major overhaul 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
A) expensed.
B) debited to accumulated depreciation.
C) capitalized.
D) allocated between accumulated depreciation and the machine account.

Question

Quizplus · Accepted Answer

The major overhaul increased the machine's fair value and production capacity by 25%, which would indicate a significant improvement and enhancement of the machine's usefulness in generating future economic benefits. Therefore, the cost of the improvement should be capitalized, meaning it should be added to the machine account as a new asset, and then gradually depreciated over the remaining useful life of the machine. Expensing or debiting the cost to accumulated depreciation would not accurately reflect the increased value and capacity of the machine. Allocating the cost between accumulated depreciation and the machine account would also not provide a clear representation of the improved asset.

A Major Overhaul Made to a Machine Increased Its Fair