If the cost of a major service on a motor vehicle, which did not increase the vehicles' useful life was incorrectly capitalised and added to the carrying amount of the vehicle rather than being expensed, expenses would be:

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Quizplus · Accepted Answer

Capitalizing the cost of a major service that does not increase the vehicle's useful life leads to understating expenses (since the cost is not expensed in the period it was incurred), overstating fixed assets (since the cost is added to the vehicle's carrying amount), and overstating equity (since net income is higher due to lower expenses, which increases retained earnings).

If the Cost of a Major Service on a Motor