Problem:
A company buys an automobile it expects to use for 60,000 miles. The company knows that it will have to perform repairs and maintenance during that time. Each routine repair maintains the ability of the car to last for 60,000 miles, but does not extend its life beyond the 60,000 miles. In addition, the company might decide to buy a new engine for the car at 50,000 miles so that the car can be used for another 30,000 miles.
Is the purchase price, repairs, and replacement engine for the automobile recorded as capital expenditures or as expenses? Please explain.