Post Acquisition Expenditures

Question 1

When can you capitalize after acquisition:

Answer 1

1) Extends Useful life

2) improves the quality/quantity

Question 2

What are examples of costs that will be capitalized after acquisitions?

Answer 2

Additions, improvements, replacements, and rearrangements.

Question 3

What are additions:

Answer 3

Extensions or enlargement of an existing

- depreciate over the shorter of the useful life of the addition or the useful life of the larger asset

Question 4

What are the accounting approaches to additions

Answer 4

Substitution- remove the old asset and accumulated deprecation, recognize a loss, and capitalize the new cost.

Increase the basis of the larger asset- use this approach when productivity is enhanced

Debit accumulated depreciation- this approach is used when expenditure increases the useful life. Reducing accumulated depreciation turns back the clock.