Answer:
The renovation cost should be capitalized, and therefore included in the cost basis of the asset (in this case the theater).
Explanation:
Capitalized costs refers to cost associated with the purchase of a fixed asset. Capitalized costs increase the cost basis of the fixed assets since they are added to the purchase cost. E.g. a company buys a new machine, besides the cost of the machine itself, the cost basis must include delivery charges, installation charges, etc.
