A major inspection is necessary for a machine to continue operating, and the inspection cost meets the recognition criteria. How is the cost normally treated?
Correct answer: B. It is recognized as part of the machine's carrying amount
- A. It is immediately charged as an ordinary repair
- B. It is recognized as part of the machine's carrying amount
- C. It is recorded as accumulated depreciation
- D. It is recognized as a liability without an asset
Explanation
A major inspection cost that meets the recognition criteria is capitalized as part of property, plant and equipment. The carrying amount of the previous inspection component is derecognized when appropriate, rather than treating the new inspection as routine maintenance.
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About Depreciation and Non-Current Assets
Non-current assets are long-term resources recorded at cost and reduced by accumulated depreciation to show their carrying amount. Coverage includes straight-line and reducing-balance methods, residual value, useful life, depreciation adjustments, capital and revenue expenditure, and the profit or loss arising when an asset is disposed of.
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