(Analysis of Subsequent Expenditures) King Donovan Resources Group has been in its plant facility for 15 years. Although the plant is quite functional, numerous repair costs are incurred to maintain it in sound working order. The company’s plant asset book value is currently \(800,000, as indicated below.

Original cost	\)1,200,000
Accumulated depreciation	400,000
Book value	\( 800,000

The following expenditures were made to the plant facility during the current year.

1. Because of increased demand for its product, the company increased its plant capacity by building a new addition at \)270,000.
2. The entire plant was repainted at a cost of \(23,000.
3. The roof was an asbestos cement slate. For safety purposes, it was removed and replaced with a wood shingle roof at a cost of \)61,000. Book value of the old roof was \(41,000.
4. The electrical system was completely updated at a cost of \)22,000. The cost of the old electrical system was not known. It is estimated that the useful life of the building will not change as a result of this updating.
5. A series of major repairs were made at a cost of $47,000, because parts of the wood structure were rotting. The cost of the old wood structure was not known. These extensive repairs are estimated to increase the useful life of the building.

Instructions

Indicate how each of these transactions would be recorded in the accounting records.

Subsequent expenses are those incurred after an asset is recorded in the financial statement and delivered to the destination and state planned. Repairs, upkeep, overhauls, upgrades, and replacements could all cost money.

Plant assets are capitalized when they are added since a new asset has been created. As a result, this enhancement makes the plant more valuable.

Expenditures that do not improve the asset's service benefits are expensed. Painting expenditures are considered standard repairs since they keep the asset in good working order or return it to its previous state.

Investing in the new roof will increase the service potential of the asset.

The book value of the preceding electrical system needs to be conceptually removed. However, in practice, it is generally difficult, if not impossible, to determine this quantity. In this situation, one of two techniques is used.

The second method is to reduce accumulated depreciation, assuming the replacement will prolong the asset's useful life and recover part or all of the previous depreciation. The difficulty with our current position is that the useful life has not increased, so it is unfair to debit accumulated depreciation. Consequently, must include this expense in the cost of the plant facility.

A detailed clarification is given in the transaction (d) answer. Since the asset's useful life has risen, a debit to Accumulated Depreciation appears to be the best option in this instance.