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Original cost
propulsion system $100m Useful life 40000 hours
The propulsion system has been used for 30000 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 50000 hours and in the year ended 30 September 20X5 the ship had used the system for 5000 hours.
Apart from depreciation what is the charge to profit or loss for the year ended 30 September 20X5?
What I think is that the charge to profit or loss is the replacement expenditure of 140 million. But why is this incorrectWhy is the replacement capitalised whilst it is not an improvement therefore revenue expenditure and not capital expenditure.
Also at what amount is old system written off. Also what is the writing off of old system called. Is it the disposal because in the question it is not mentioned that the old system is disposed of. Also why is the old system written off
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