Question

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 damaged the truck that was used, and it cost $3,000 to repair the truck. The machine was also slightly damaged, 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

Schedule showing amount to be recorded in the books of Colt

Particulars	Amount ($)
Invoice price	70000
Add:
Sales tax	4200
Hauling charges	4000
Repair cost	900
Installation cost	27000
Testing cost	2100
Safety guard	450
Amount to be recorded in the books	108650

Notes:-

1. Sales tax can be capitalised as the cost of machine.

2. Fine for failing paper permits cannot be included in the cost as it is not directly paid for transporting the machine.

3. Cost of repairing the truck cannot be included in the cost of machine.

4. Cost of repairing machine can be included, as costs for putting machine to actual use can capitalised.

5. Cost of shoring up the floor are a part of installation cost and can be included.

6. Testing costs can be capitalised as per Accounting Standard.

7. Cost of safety guards can be included as it is mandatory in nature for using the machine.