The Cheese Factory incurred the following costs related to acquiring a new piece of equipment: Cost of the equipment $ 50,000 Sa
les tax (8%) 4,000 Shipping 3,000 Installation 2,000 Depreciation during the first month 1,000 Total costs $ 60,000 What is the total recorded cost of the equipment?
The multiple choices missing from the question are:
a. $60,000.
b. $50,000.
c. $57,000.
d. $59,000.
Option D,$59000 is correct
Explanation:
The recorded cost of the equipment is made of purchase cost,the sales tax since it is not recoverable,shipping cost as well as the installation cost.
The recorded cost is computed thus:
Purchase price $50,000
sales tax $4,000
shipping $3,000
installation $2,000
total cost $59,000
The rationale for including shipping and installation costs is that asset cost should include cost of bringing the asset to current location(shipping) and condition(installation)
The accounting standard for fixed asset under IFRS IAS 16 Property, plant and equipment (PPE) requires that an element of PPE be recognized at historical cost which includes all the cost incurred to bring the item of PPE to a state or place where the item becomes available for use.
These costs includes cost of purchase, freight, Installation sales tax etc.
