cost painting

Hello Mr chris,

why in this case below we have to consider $20m repainting cost as expense even though it is a major expense ,isn’t it a big amount that we have to capitalise.

Thanks,

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Elite Leisure Co OTQ case 18 mins
The following scenario relates to questions 57–61.
Elite Leisure Co is a private limited liability company that operates a single cruise ship. The ship was acquired on
1 October 20W6 (ten years before 20X6). Details of the cost of the ship’s components and the basis on which they
are depreciated is as follows:
Component Original cost Depreciation basis
$m
Ship’s fabric (hull, decks etc) 300 25 years straight-line
Cabins and entertainment area fittings 150 12 years straight-line
Propulsion system 100 Useful life of 40,000 hours
At 30 September 20X4 no further capital expenditure had been incurred on the ship.
The propulsion system has been used for 30,000 hours at 30 September 20X4. Due to the unreliability of the
engines, a decision was taken in early October 20X4 to replace the whole of the propulsion system at a cost of $140
million. The useful life of the new propulsion system was 50,000 hours and in the year ended 30 September 20X5
the ship had used the system for 5,000 hours.
At the same time as the propulsion system replacement, Elite Leisure Co took the opportunity to do a limited
upgrade to the facilities at a cost of $60 million and repaint the ship’s fabric at a cost of $20 million. After the
upgrade of the facilities it was estimated that their remaining useful life was five years (from the date of the
upgrade). For the purpose of calculating depreciation, all the work on the ship can be assumed to have been
completed on 1 October 20X4. All residual values can be taken as nil.