Mixed purchase scenarios with reduced scaffolding. Students classify and explain choices, not just compute.
Classify, Calculate, and Explain
Now you will practice with mixed purchase scenarios. The hints are reduced, and you need to explain your reasoning — not just pick an answer.
Use this framework for every purchase. The questions get harder as you go.
Step 1
Lasts more than 1 year?
Step 2
Cost significant?
Step 3
Estimate useful life & salvage value
Step 4
Calculate depreciable base
Repairs vs. Improvements
Repairs (oil change, fixing a broken window) maintain the asset but do not extend its life → Expense.
Improvements (new roof, engine upgrade) extend useful life or increase capacity → Capitalize.
Bundled Purchases
If you buy equipment and pay for installation, the total cost (purchase price + delivery + installation) becomes the asset's cost basis.
1. TechStart buys a $12,000 commercial espresso machine for the employee break room. It will last about 8 years and can be sold for $1,000 at the end. Should this be capitalized or expensed? What is the depreciable base?
2. TechStart pays $800 for a one-year business insurance policy. Should this be capitalized as a fixed asset or treated differently?
3. TechStart spends $4,000 to replace the roof on its warehouse. The old roof was fully depreciated. The new roof will last 15 years. Should this be capitalized or expensed?
4. An asset costs $20,000, has a useful life of 4 years, and a salvage value of $4,000. What is the depreciable base?
5. After 2 years, an asset with a $10,000 cost and $2,000 salvage value has accumulated depreciation of $4,000. What is its current book value?
Discussion Prompt (4 minutes):
Sarah's accountant says the $15,000 3D printer has a useful life of 7 years and a salvage value of $2,000. Another accountant says it should be 5 years and $1,000.
- How would different useful life estimates affect the annual depreciation expense?
- Who gets to decide useful life and salvage value — is there one right answer?
- Why might a company choose a shorter useful life?
In the next phase, you will get repeated practice classifying purchases with new numbers each time. The interface will track your streak and give you targeted feedback when you make mistakes. Your goal: 5 correct classifications in a row.