Reference no: EM132983904

Problem 1: Which of the following is not a capital expenditure?

a) Repairs that maintain an asset in operating condition

b) An addition

c) A betterment

d) A replacement

Problem 2: An entity imported machinery to install in its new factory before year-end. However, due to circumstances beyond its control, the machinery was delayed by a few months but reached the factory premises before year-end. While this was happening, the entity learned from the bank that it was being charged interest on the loan it had taken to fund the cost of the plant. What is the proper treatment of freight and interest expense under PAS 16?

a) Both expenses should be capitalized.

b) Freight charges should be capitalized but interest cannot be capitalized under these circumstances.

c) Interest may be capitalized but the freight should be expensed.

d) Both expenses should be expensed.