{"id":7444,"date":"2021-10-22T01:18:26","date_gmt":"2021-10-21T17:18:26","guid":{"rendered":"https:\/\/www.zhonghepack.com\/?p=7444"},"modified":"2023-06-27T16:20:52","modified_gmt":"2023-06-27T08:20:52","slug":"extraordinary-repairs-definition","status":"publish","type":"post","link":"https:\/\/www.zhonghepack.com\/7444.html","title":{"rendered":"Extraordinary repairs definition"},"content":{"rendered":"

According to generally agreed accounting principles (GAAP), extraordinary repairs are generally capitalized if the useful life is increased by more than a year. A major repair such as an engine overhaul, which will extend the useful life of the asset. The amount should be recorded in the asset account and then depreciated over the remaining life of the asset. This may be set in contrast to ordinary repairs, which are considered to be normal and preventive maintenance. Accounting defines the activity that is done by the business to record the transactions which take place in a business to estimate the profit or loss made by the company in a particular period of time.<\/p>\n

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What is an example of something extraordinary?<\/h3>\n<\/div>\n
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very unusual and special; different in type or greater in degree than the usual or ordinary: Being chairman gave him an extraordinary sense of power. She was an extraordinary woman, and no one will ever forget her.<\/p>\n<\/div><\/div>\n<\/div>\n

Caleb exchanges the machine for a newer model that has a market value of $52,000. On January 1, 2010, Mason Co. entered into a 12-year lease on a building. After taking possession of the leased space, Stewart pays for improving the office portion of the leased space at a $20,000 cost.<\/p>\n

Related Answered Questions<\/h2>\n

Financial statements are prepared to find the profit or loss of business. On the other hand, assume that ABC Boating Company has decided to overhaul one of its lines of boats. Twenty of the boats' older engines are swapped out for new, more powerful engines. The new engines are predicted to extend the useful life of the boat for an additional five years. ABC spends $20,000 on each boat, for a total of $400,000, which is a material cost to the company. Caleb Co. owns a machine that costs $42,400 with accumulated depreciation of $18,400.<\/p>\n

However, the debit side of the entry should be the respective asset account, not accumulated depreciation. Ordinary repairs mean expenses that are incurred in a business which helps to increase the useful life of an asset. Larger repairs that make the delivery trucks last longer, on the other hand, are capitalized because they add to the asset\u2019s life. Replacing a motor or a transmission is an example of an extraordinary repair. This type of repair is infrequent and usually expensive compared with the value of the asset. A new transmission or motor can extend the life of a vehicle by 5 to 10 years.<\/p>\n

Asset<\/h2>\n

With the new engines that extend that life by five years, the boats now have a remaining useful life of 10 years. The increase in value to the fixed asset will add an additional $40,000 ($400,000 increase in value \/ 10 years) to each year's depreciation expense. This additional cost will flow through to the income statement over the course of those 10 years. The journal entry to record costs related to extraordinary repairs would include a to 1. The cost of these repairs should be included in the cost of the fixed asset that was repaired, and depreciated over the revised remaining life of the asset.<\/p>\n

\"extraordinary<\/p>\n

It may be more practical from an accounting perspective to record the cost of an extraordinary repair as a separate fixed asset, which makes the fixed asset records easier to understand. Since the benefits of these repairs will extend into future periods, GAAP requires that we record this transaction as an additional asset. Sometimes these repairs are reported as a separate https:\/\/accounting-services.net\/extraordinary-repairs-accountingtools\/<\/a> asset and sometimes they are reported as an addition to the existing asset. For example, if the delivery truck was on the books for $5,000 and $1,000 was paid for a transmission upgrade, the vehicle would be reported at $6,000 on the next balance sheet. An accumulated depreciation account is used to record the cumulative depreciation of an asset over its useful life.<\/p>\n

Accounting<\/h2>\n

An extraordinary repair is not considered to be normal preventive maintenance, which is only intended to make machinery attain its originally intended life span. Instead, an extraordinary repair is targeted at those parts of a machine that will wear out by the expected asset retirement date, so that the machine can continue to function for a prolonged period. Examples of extraordinary repairs are a new roof for a building, a new engine for a truck, and repaving a parking lot. Say the line of boats originally had five years remaining on their useful life.<\/p>\n