If the cost of replacing the engine on a motor vehicle, which increased the vehicles' useful life by five years, was charged as an expense rather than being capitalised and added to the carrying amount of the vehicle, profit would be:

Question

Quizplus · Accepted Answer

If the cost of replacing the engine on a motor vehicle, which increased the vehicle's useful life by five years, was charged as an expense rather than being capitalized and added to the carrying amount of the vehicle, profit would be understated because the expense would be recognized immediately instead of being depreciated over the asset's useful life. Additionally, fixed assets would be understated because the cost of the engine replacement would not be added to the carrying amount of the vehicle, and equity would be understated because the expense would reduce net income and, therefore, retained earnings.

If the Cost of Replacing the Engine on a Motor