Repairs & Maintenance: Brandon bought a new delivery truck paying $60,000 cash d
ID: 2497784 • Letter: R
Question
Repairs & Maintenance:
Brandon bought a new delivery truck paying $60,000 cash down and signing a Note Payable for the rest of the $75,000 purchase price. The truck was placed in service on June 1, Year 1. On January 1, Year 3, Brandon spent $20,000 on the truck. 80% of this amount was spent to restore the truck to its June 1, Year 1, condition. The remainder was to install a GPS tracking system. Previously, the truck had no such system.
Required: At January 1, Year 3, what is the truck’s proper cost basis. This cost basis would be used later in depreciating this asset. [Ignore any and all amounts that might have been depreciated prior to Year 3.]
$_________
Explanation / Answer
Expenditure that increases the operation/efficiency of asset shall be capitalised.
so 80% of expenditure was incurred to restore the truck to its original condition is a capital expenditure.
Truck cost basis = 60000 + 75000 + (20000 * .80 )
= 60000+75000+16000
= 151000
**since truck can be used effectively without GPS system too ,thus GPS system installed shall be depreciated seperately.