PRC-1 · Chapter 6 · Question 51 of 100
How should the cost of small but expensive alterations to a manufacturing machine, which directly increases the machine's output capacity by 15%, be classified?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) Capital expenditure
Explanation
Because the alteration enhances the future economic benefits of the asset (by increasing its output capacity beyond its original standard of performance), it must be capitalized as part of the asset's cost.
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