Post-Acquisition Expenditures

Question 1

When should post-acquisition costs be capitalized?

Answer 1

If, as a result of the expenditure, the asset is:

1. ) More productive
2. ) Has a longer useful life.

Question 2

Are repairs usually capitalized?

Answer 2

No, not usually. Although it prolongs the useful life of an asset, the assets initial useful like assumes a minimum level of periodic service

Question 3

When would you increase an asset’s account basis by the post-acquisition costs?

Answer 3

When the productivity of the asset is enhanced rather than the useful life extended.

Question 4

What are the accounting approaches for post-acquisition expenditures?

Answer 4

1. )Substitution - Remove A/D and cost of old component, recognize loss, and capitalize post-acquisition expenditure. Only available if old accounting system kept up with cost and A/D
2. ) Increase larger asset account by post-acquisition cost - Used when the productivity is enhanced, rather than the useful life
3. ) Debit A/D - Used when the expenditure increases the useful life of a larger asset. Debt to A/D “Turns back the clock” of the asset.

Question 5

How is a post-acquisition expenditure that is capitalized depreciated?

Answer 5

It is depreciated over the shorter of its useful life or remaining useful life of the larger asset