Question

Reuben​, LTD. acquired an assembly machine at an invoice cost of $ 295 comma 000 during the current year. The delivery cost was $ 870 and installation costs amounted to $ 1 comma 870. The machine required a separate electrical line that cost $ 1 comma 300 to install. During the​ installation, a negligent employee damaged an exterior wall attached to the assembly shop. The company paid $ 1 comma 270 to repair the wall. What is the acquisition cost of the assembly​ machine? Prepare the journal entries to properly account for the expenditures​ made, assuming that Reuben paid cash for all expenditures. What is the acquisition cost of the assembly​ machine? The acquisition cost of the assembly machine is $ .

Answer 1

Cost of the fixed assets consists of the following: i) its purchase price, import duty and non refundable taxes. Any trade discount and rebate should be excluded ii) cost directly attributable for bringing the assets their present location and condition which is necessary for the operation of the assets Some examples of the directly attributable costs are delivery and handling cost, installation and assembly cost, site preparation cost, testing cost incurred ensure assets is properly functioning or not. Calculation of Cost of Machinery Purchase price of Machinery Add: Delivery Add: Installation cost Add: Electrical line cost Total Cost of Machine $295,000 $870 $1,870 $1,300 $299,040 The repairs charges $1800 incurred for damage is not a reasonable expenditure incurred bring the machine their present location and condition so that the machine is ready for its intended use The acquisition cost of the assembly machine is $299040 Journal Entry Account Title Machinery Cash (To record purchase of machinery) Machinery Cash (To record delivery charges paid for the machinery) Machinery Debit Credit $295,000 $295,000 $870 $870 $1,870 $1,870 Cash (To record instalation of machinery) $1,300 Machinery Cash $1,300 (To record cost incurred for electrical line for machinery)