Which statement is true about additions to plant assets?

• A. Additions to plant assets are capitalized and increase the asset's book value.
• B. Additions to plant assets decrease the accumulated depreciation of the asset.
• C. Additions to plant assets have no impact on the financial statements.
• D. Additions to plant assets are always expensed in the period incurred.

Answer: (A)

Verified step by step guidance

1. Understand the concept of 'additions to plant assets': Additions refer to expenditures made to enhance or expand the capacity, efficiency, or useful life of an existing plant asset. These are typically capitalized rather than expensed.
2. Clarify the term 'capitalized': Capitalizing means recording the expenditure as an asset on the balance sheet rather than as an expense on the income statement. This increases the book value of the asset and spreads the cost over its useful life through depreciation.
3. Evaluate the impact on accumulated depreciation: Additions to plant assets do not directly decrease accumulated depreciation. Instead, they may extend the useful life or increase the value of the asset, which could affect future depreciation calculations.
4. Analyze the financial statement impact: Additions to plant assets are capitalized, meaning they increase the asset's book value on the balance sheet. They do not have an immediate impact on the income statement unless they are incorrectly expensed.
5. Review the incorrect options: Additions are not always expensed in the period incurred, nor do they have no impact on financial statements. The correct statement is that additions are capitalized and increase the asset's book value.