The Cummings Company charged various expenditures made during 2018 to an account

Question

The Cummings Company charged various expenditures made during 2018 to an account called repairs and main- tenance expense. You have been asked by your supervisor in the company's internal audit department to review the expenditures to determine if they were appropriately recorded. The amount of each of the transactions included in the account is considered material. 1. Engine tune-up and oil change on the company's 12 delivery trucks-$1,300. 2. Rearrangement of machinery on the main production line-$5,500. It is not evident that the rearrangement ase will increase operational efficiency 3. Installation of aluminum siding on the manufacturing plant-$32,000. 4. Replacement of the old air conditioning system in the manufacturing plant with a new system-$120,000. 5. Replacement of broken parts on three machines-$1,500. 6. Annual painting of the manufacturing plant-$11,000. 7. Purchase of new forklift to move finished product to the loading dock-$6,000. 8. Patching leaks in the roof of the manufacturing plant-$6,500. The repair work did not extend the useful life of the roof. Required: For each of the transactions listed above, indicate whether the expenditure is appropriately charged to the repair and maintenance expense account, and if not, indicate the proper account to be charged.

Explanation / Answer

S.No Particulars Account to be charged Correct/Incorrect Reason 1 Engine tune up and oil change Repairs and maintanance Correct The expenditure is necessary for the smooth running of the vehicles, but did not add any value to the vehicle 2 Rearrangement of machinery Repairs and maintanance Correct As the rearragement did not increae the operating efficiency, and did not result in creation of new asset, is to be treated as a maintenance expenditure 3 Installation of aluminium siding Furniture and fixtures Incorrect Aluminum siding is not an existing asset, but is a new installation. 4 Replacement of the old air conditioning system Furniture and fixtures Incorrect Air conditioner is replaced with the new one, and this new airconditiner has its own depreciable value and the life of the air conditioner is more than the already existing one. 5 Replacement of broken parts Repairs and maintanance Correct Broken parts are replaced to ensure the smooth running of the machine, this does not increase the operating efficiency, but only helps in maintaining the existing or expected efficiency of similar machines 6 Annual painting of the manufacturin plant Repairs and maintanance Correct It only helps in maintaining the apperance of the manufacuring plant, henc e, it is a maintenance activity 7 Purchase of new forklift Plant and equipment Incorrect Purchasing a new asset cannot be classified as repairs and maintenance 8 Patching leaks in the roof Repairs and maintanance Correct Pathcing leaks is only a maintenane activity

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