Question

A government incurred expenses for its infrastructure as follows: $25 million for general repairs; $20 million to extend the life for existing infrastructure; and $22 million for additions and betterments. The infrastructure has a basis of $400 million and would be depreciated over a 40 year life, if depreciation were charged. The government chooses to use the modified approach to record infrastructure. The total amount that would be shown as expense in the Statement of Activities would be:

Answer 1

Answer: $45million

Step-by-step explanation:

general repairs - $25 million

$20 million to extend the life for existing infrastructure

additions and betterment - $22 million

Using the modified approach, cost associated worh the Depreciation of infrastructure asset are not considered. That is, it does not record adjusting entries for cost related to accumulated Depreciation or Depreciation expenses. Only maintainance and preservation expenses are recorded as expense.

Therefore, using the modified approach, the total amount shown as expense in the statement of activities will be ;

General repair expense + cost of extending the life of existing infrastructure

$25million + $20 million = $45 million