Subsequent Expenditures It is often necessary to make expenditures for property, plant, and equipment assets after their initial acquisition. The appropriate accounting treatment for these expenditures depends on their nature. Most subsequent expenditures are for routine maintenance or upkeep. Expenditures for routine maintenance should be debited to an appropriate expense account. On the other hand, some expenditures that go beyond routine maintenance may actually extend the life of the asset beyond the original expectation, or even make the asset better than it was when it was new. Accountants refer to expenditures for routine maintenance as revenue expenditures because they are charged to expense and matched against current revenues. Expenditures that extend the original life of an asset, or make it better than it was before, are referred to as capital expenditures. Capital expenditures may be accounted for in one of two ways: either the asset account is debited, or the related accumulated depreciation account is debited for the amount of the expenditure. Either way, the effect is the same; the book value (original cost less accumulated depreciation) of the asset is increased. The most common practice is to debit expenditures that extend asset life to the Accumulated Depreciation account and to debit expenditures that make an asset "better than new," betterments, to the asset account. When these expenditures result in changing the estimated life of an asset, the depreciation charge for subsequent years is calculated by dividing the remaining book value (less the estimated residual value, if any) by the new estimate of the remaining life of the asset. Accountants call this process a change of accounting estimate. No retroactive correction of the prior years' depreciation charges is needed when a change of accounting estimate is made. To illustrate the difference between revenue expenditures and capital expenditures, consider some typical expenditures involving a truck. Engine oil changes, tune-ups, tire replacements, and brake overhauls are examples of necessary routine maintenance on a truck. The cost of routine items is debited to a maintenance expense account. On the other hand, the installation of a complete new engine in a truck that is several years old might enable that truck to continue in use for a longer period of time than originally estimated. The cost of the new engine would typically be debited to the accumulated depreciation ac-count, although some accountants might prefer debiting the truck account. An example of a betterment is the installation of a new body and/or new running gear enabling the truck to carry a heavier load than originally possible. Disposal of Property, Plant, and Equipment Property, plant, and equipment items will ultimately lose their usefulness to the business and be disposed of in one way or another. Some common methods of disposal are sales, involuntary losses as a result of accidents, abandonments, and trade-ins on other assets. A basic point to keep in mind in accounting for the disposition of depreciable assets is that when an asset's cost is removed from the books, the accumulated depreciation associated with the asset must also be removed from the books. In many cases it is necessary to update the accumulated depreciation account before recording the disposition of the asset. For example, depreciation must be recorded when an asset is disposed of during an accounting period because most companies only record depreciation expense at the end of each accounting period. Normal practice is to account for partial-year depreciation prior to recording the disposal of the asset. The entry to update depreciation is a debit to Depreciation Expense and a credit to Accumulated Depreciation for the applicable portion of the depreciation charge for the year. To illustrate asset disposition under several conditions, assume again that Paul Company purchased equipment on January 1, 1993, at a cost of $5,000 with a fiveyear useful life and an estimated residual value of $500. The equipment is disposed of on January 1, 1995, and straight-line depreciation is used. Therefore, the asset account has a $5,000 balance (the original historical cost) and the accumulated depreciation account has an $1,800 balance. The book value of the asset (original cost less accumulated depreciation) is $3,200. No additional updating is necessary prior to the disposal because the accounts would have been adjusted on the preceding day, December 31, 1994.