Question

A shipping company is required by law to bring all ships into dry dock every five years for inspection and overhaul. What is the correct treatment for these charges?

A Recognized in profit or loss Correct Answer Incorrect Answer
B Recognized in carrying amount Correct Answer Incorrect Answer
C Recognized a revenue expenditure Correct Answer Incorrect Answer
D Either a or b Correct Answer Incorrect Answer

Solution

Overhaul expenditure might at first sight seem to be a repair to the ships but it is actually a cost incurred in getting the ship back into a seaworthy condition. As such the costs must be capitalized.

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