Betterment definition
/What is a Betterment in Accounting?
A betterment is an improvement made to a fixed asset in order to extend its useful life or increase its value. Doing so results in an enhanced asset. Expenditures on betterments are quite common for larger, more expensive assets that are expected to be in use for an extended period of time.
Example of a Betterment
There are numerous situations in which you might invest in a betterment. Here are several examples:
The refurbishment of the rooms in a hotel
The dry dock expenses associated with a ship
The installation of a new concrete roof on an older business building
Accounting for a Betterment
The cost of a betterment can be capitalized and depreciated over time. Conversely, if an expenditure on a fixed asset does not result in an improvement, then the cost is charged to expense as incurred. For example, adding a garage to a building would be considered a betterment, whereas repainting the building would not. Identifying a betterment will complicate the accounting for an asset, since it involves characterizing the betterment as an additional asset. Since there is an administrative cost associated with the accounting for a betterment, it is customary for an organization to adopt a policy that sets a minimum dollar threshold, above which betterments will be recorded as separate assets. Below that threshold, betterments are charged to expense as incurred.
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FAQs
How is Betterment Different from Maintenance?
Betterment involves improving an asset beyond its original condition by increasing its value, efficiency, or useful life, and is capitalized as part of the asset's cost. Maintenance, on the other hand, includes routine activities that keep an asset in working condition without enhancing its performance or value, and is expensed immediately. The key difference lies in the lasting benefit; betterment provides future economic gains, while maintenance preserves current functionality.