Question

Trinkle Co., Inc. made several purchases of long-term assets in Year 1. The details of each purchase are presented here.

New Office Equipment

1. List price: $35,800; terms: 2/10 n/30; paid within discount period.
2. Transportation-in: $900.
3. Installation: $410.
4. Cost to repair damage during unloading: $644.
5. Routine maintenance cost after six months: $160.

Basket Purchase of Copier, Computer, and Scanner for $53,800 with Fair Market Values

1. Copier, $25,272.
2. Computer, $7,128.
3. Scanner, $32,400.

Land for New Warehouse with an Old Building Torn Down

1. Purchase price, $83,900.
2. Demolition of building, $5,490.
3. Lumber sold from old building, $1,440.
4. Grading in preparation for new building, $9,600.
5. Construction of new building, $224,000.

Required
In each of these cases, determine the amount of cost to be capitalized in the asset accounts.

Asset Office equipment Allocated Costs $ 37,110 Basket purchase: Asset Allocated Costs Copier Computer Scanner Total $ Land and building: Allocated Costs Asset Cost of land Construction costs Total cost

Answer 1

New office equipment

Amount of cost to be capitalised in the asset accounts = 35800*0.98+900+410+644 = 37038.

Routine maintenance cost will be taken to P&L

Basket purchase of copier, computer and scanner

Amount of cost to be capitalised in the asset accounts = fair market values = 25272 + 7128 + 32400 = 64800

The difference between fair value and purchase price will be recorded as a gain on its income statement.

Land for new warehouse with an old building torn down

All the costs and sales will be considered.

Amount of cost to be capitalised in the asset accounts = 83900 + 5490 - 1440 + 9600 + 224000 = 321550

The general rule is that all costs to bring the asset to usable form will be capitalised. The company follows fair value accounting of assets.