Products

Holooly Rewards

We are determined to provide the latest solutions related to all subjects FREE of charge!

Please sign up to our reward program to support us in return and take advantage of the incredible listed offers.

Enjoy Limited offers, deals & Discounts by signing up to Holooly Rewards Program

Holooly Ads. Manager

Advertise your business, and reach millions of students around the world.

Holooly Tables

All the data tables that you may search for.

Holooly Arabia

For Arabic Users, find a teacher/tutor in your City or country in the Middle East.

Holooly Sources

Find the Source, Textbook, Solution Manual that you are looking for in 1 click.

Holooly Help Desk

Need Help? We got you covered.

Chapter 6

Q. 6.8

A building, with a cost of 22 mil. lei, is depreciated over 20 years via the straight-line method (a residual value of 2 mil. lei is estimated). The following events occur :

(a) during the 3rd year of use its internal walls are repainted, the overall cost is 80,000 lei (no VAT added)
(b) on December 31st, 20X9, a general repair and full renovation project ended, the overall cost of it being 1.19 million lei (VAT of 19% included).

Requirements: Which subsequent costs should be capitalised and what effect would this have on the annual financial statements?

Step-by-Step

Verified Solution

The painting process by the end of the third year of use does not qualify for cost capitalisation, it is just a maintenance cost and is to be expensed. However, the renovation cost does qualify for capitalisation because it provided additional benefits, for e.g., prolonging the useful life of the building. Therefore, the amount of 1 mil. lei (VAT excluded) increases the value of the non-current asset and its depreciable amount (depreciation shall be reassessed, based on the new value).

  •  Journal entries for wall painting:

80,000 lei                      Other operating expenses     =         Accounts payable                                        80,000 lei


 

  •  Journal entry for consolidation cost:

1,190,000 lei                    %                             = Accounts payable for non-current assets                                          1,190,000 lei

1,000,000 lei                 Buildings
190,000 lei                    VAT deductible