How are maintenance expenditures treated for fixed assets in accounting compared with capital expenditures?

• A. Maintenance is expensed as incurred; capital expenditures are capitalized as part of the asset and depreciated over time.
• B. Maintenance is expensed as incurred; capital expenditures are expensed when the asset is purchased.
• C. Maintenance is expensed as incurred; capital expenditures are depreciated immediately.
• D. Maintenance is expensed; capital expenditures are capitalized and amortized.

Answer: (B)

Maintenance costs are expensed as incurred because they keep the asset in normal operating condition and do not add future economic benefits beyond the asset’s existing state. They’re recorded in the period they occur since they don’t extend the asset’s life or capacity.

Capital expenditures, on the other hand, create future benefits by extending the asset’s life, improving performance, or increasing capacity. These costs are added to the asset’s recorded cost on the balance sheet and then depreciated (or amortized) over the asset’s useful life, allocating the expense across multiple periods.

In practice, this means routine repairs and servicing are charged to expenses now, while major upgrades, replacements, or improvements are capitalized and depreciated over time.