A few days ago
Brumby

Accounting question. Please answer!?

Immediately after a used delivery van is acquired, a new motor is installed and the tyres are replaced at a cost of $4,750. Is this a capital expenditure, or should it be treated as an expense in the income statement?

Top 3 Answers
A few days ago
ichbinhier

Favorite Answer

Replaced tyres/motors are usually treated as a major capital improvement (thus a capital expenditure).

Anyway, you should understand the difference between an asset and an expense first.

An asset should have future economic benefits to the entity, and the entity should bear risks and rewards from having the asset on the balance sheet. For capital expenditure, they are normally recorded as an asset first, and its value is decreased systematically by depreciation or impairment (both are expenses).

So, you should ask yourself first whether the motor and the tyres have future economic benefits or not. Does the entity have a risk of damage so that it has to insure/repair/maintain? Does the entity receives economic benefits from using the motor and the tyres after the balance sheet date?

The answers to all questions seem to be yes (motors and tyres should have more than one year of economic life unless the accounting cycle of the firm in questino is much longer).

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A few days ago
mike_goesblues
replaced tyres is not a capitaL expensditure, it should be treated as an expense in the income statement.
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A few days ago
Jessica C
Capital. So is the insurance, road tax etc.
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