CFA Level I · CFA Level I Exam · Analysis of Long-Term Assets
Which of the following costs related to an existing item of property, plant and equipment would most likely be capitalized under IFRS?
Replacing an engine that extends the asset's useful life is capitalized. It enhances future economic benefits beyond the original estimate, whereas routine repainting, servicing, and minor parts only maintain existing performance and are expensed as incurred.
- ARoutine repainting of the building
- BReplacement of an engine that extends the asset's useful lifeCorrect
- CDay-to-day servicing and replacement of minor parts
Explanation
Subsequent expenditure is capitalized when it creates probable future economic benefits beyond the original assessment, such as extending useful life. Painting and routine servicing only maintain the existing level of benefits and are expensed.
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