Question

Here is the problem:

Colt Company purchased a machine for use in it operations that had an invoice price of $70,000, excluding sales tax. A 6% sales tax was levied on the sale. Terms were net 30. the company paid a total cost of $4,600 for hauling the machine from the dealer's warehouse to the company's plant Company, and this $4,600 included a fine of $600 for failure to secure the proper permits to use city streets in transporting the machine. In delivering the machine to its plant, a Colt employee recklessly damaged the truck that was used, and it cost $3,000 to repair the truck. The machine itself was also slightly damaged as a result of the misguided actions of the employee, with repair costs amounting to $900. Colt incurred installation costs of $27,000 that included the $3,000 cost of shoring up the floor under the machine. Testing costs amounted to $2,100. Safety guards were installed on the machine at a cost of $450, and the machine was placed in operation.

Required: Prepare a schedule showing the amount at which the machine should be recorded as an asset in Colt's books.  

Answer 1

Treatment of machine as an asset in Colt's company books:

Purchased cost of the machine is $ 70,000

Sales tax @6% =70000*6% = $ 4,200

1. Sales tax of $ 4,200 considered as an asset and we can claim depreciation for the same during the useful life of the asset.

2. Cost incurred for hauling the machine is $ 4,600, treated as an asset. Fine incurred for failure to secure the proper permits to use city streets is also treated as an asset.

3. Cost incurred for damaged truck was in used is $ 3000 for this we won't capitalised, damage incurred due to employee recklessly and for the cost incurred for repairing the machine was treated as an asset.

4. In total installation costs, we can capitalised up to $24,000 and cost of shoring up the floor can be treated as revenue expenditure.

5 Testing costs and safety guards were installed on the machine were recorded as an asset.

Total cost of the asset is

Invoice price of the machine = 70,000

Add: Sales tax @6% =4,200

Transportation costs = 4,600

Cost incurred for damaged machine repair = 900

Installation charges = 24,000

Testing costs = 2,100

Safety guerds installation charges = 450

Therefore, total cost of the asset recorded as an asset in Colt's books is $ 1,05,650.