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    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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