Question

Capital recoveries include:

a. The cost of capital improvements.
b. Ordinary repair and maintenance expenditures.
c. Payments made on the principal of a mortgage on taxpayer’s building.
d. Amortization of bond premium.
e. All of the above.

Answer 1

Capital recoveries include the cost of capital improvements, ordinary repair and maintenance expenditures, payments made on the principal of a mortgage, and amortization of bond premium. Thus, the answer is 'e. All of the above'.

Step-by-step explanation:

Capital recoveries can include various expenditures and payments made in relation to the use and financing of capital assets. Specifically, capital recoveries may consist of the following:

• Cost of capital improvements, which enhance the value of an asset or extend its life.
• Ordinary repair and maintenance expenditures, which help to maintain the asset in its current condition rather than improve it.
• Payments made on the principal of a mortgage on the taxpayer’s building, which reduce the amount owed on the capital asset.
• Amortization of a bond premium, which is a method of gradually reducing the additional amount a bondholder paid over its face value.

Therefore, among the options provided, the correct answer to the student's question would be 'e. All of the above' as all these elements are associated with the process of capital recovery.