Prepaid maintenance vs. capital cost in accounting Steps:

• Separate payment: $45,000 for machinery (capitalized asset),$5,000 for 3-year maintenance (prepaid expense).
• Depreciate machinery: 10% of $45,000 =$4,500 charged to profit/loss for 2020.
• Amortize prepaid maintenance: $5,000 / 3 years =$1,667 expensed in 2020; remaining $3,333 as current asset.
• Total 2020 expense: $4,500 depreciation +$1,667 amortization = $6,167.

Why B is correct:

• B reflects accrual accounting principle (IAS 38), capitalizing qualifying assets and amortizing prepayments over their benefit period.

Why the others are wrong:

• A: Treats all as immediate expense, ignoring capitalization rules for long-term assets.
• C: Overstates depreciation by including full $50,000 as machinery cost.
• D: Fails to amortize prepaid maintenance, violating matching principle.

Final answer: B