Question

Salvia Company recently purchased a truck. The price negotiated with the dealer was $40,500. Salvia also paid sales tax of $2,100 on the purchase, shipping and preparation costs of $3,100, and insurance for the first year of operation of $4,100. At what amount should the truck be recorded on the balance sheet prior to recording depreciation expense?

Answer 1

Answer:

The cost at which the truck will be recorded is $45700

Explanation:

The cost at which an asset should be recorded in the books of a business includes the all the costs that are incurred to purchase the asset and bring it to the location and condition necessary for use at it was intended. These costs are usually non recurring in nature.

The truck should be recorded at,

Purchase price                  40500

Sales tax paid                     2100

Shipping & Preparation     3100

Total cost                           45700

The sales tax will be capitalized if it is not refundable.

The shipping and preparation cost are necessary for the truck to bring it to the location and condition necessary for it to use.

The insurance is a recurring expense and is not necessary cost to bring the truck to the location and condition necessary for it to use.

Answer 2

Answer:

Cost of truck = $45,700

Explanation:

According to International Accounting Standards (IAS) 16, property plants and equipment, the cost of an assets includes all of the cost necessary to bring and make it ready for the intended use.  

These costs include purchase cost, fees and commission associated with the purchase of the asset.  

Cost of the truck for record =40,500 + 2,100 + 3,100

                                               = $45,700

The insurance cost was incurred after the purchase and is not a cost necessary to bring the truck to for its intended use