Question

A company does a major upgrade ($10,000) to a building that is NOT expected to extend the useful life of the building. Data for building before the upgrade: Cost $100,000 Accumulated Depreciation $20,000 What is the journal entry to record the upgrade

Answer 1

Debit : Building $10,000

Credit : Cash $10,000

Step-by-step explanation:

The major upgrade is treated as if we purchased another Building separately, with own useful life.

So, the upgrade will increase the Assets of the Buildings (Debit) and decrease the Assets of Cash to depict outflow of economic benefits.

Now, Depreciation for the year will then be considered separately for the Building in existence and the upgrade as they have different useful life.