What accounting treatment is normally given to the following items in accounting for plant assets? (a) Additions. (b) Major repairs. (c) Improvements and replacements.

The company uses it to capitalize on the cost of any addition to the plant assets. The company capitalizes on the cost because new assets are added by the company in the existing plant assets.

Treatment of major repair depends on the type of major repair. A major repair is treated as the addition, improvement, or replacement.

Replacement adds the new assets or parts but the improvement did not add anything to the plant asset. If the carrying value of the old asset is known then the improvement or replacement cost is capitalized. If the carrying amount is unknown then following two situations determine the treatment of improvement or replacement:

(a) When the improvement or replacement increases the useful life of the asset then the cost of improvement or replacement is added to the accumulated depreciation account.

(b) When the improvement or replacement leads to an increase in efficiency of asset then the cost of improvement or replacement is capitalized.