Question

XYZ Enterprises purchased a heavy machine for $28000, terms 1/10, 1/60, FOB shipping point. It received a freight invoice from Fast Delivery for $450.XYZ took advantage of the discount. It also required a special steel mounting and power connection costing $985 and another &600 was paid to put the machine into operation. However due to mishandling during installation a part was damaged and had to be replaced for $380.Another $310 was paid to labor as installation charges. Special insurance @200 per month was needed henceforth. Calculate the amount to be capitalized for this machine. (Hint - The question is asking as to what the initial cost of the machine should be.1/10 and n/60 are terms of payment or discount terms- which means 1 % discount if paid within 10 days and no discount beyond that but must be paid within 60 days) Ans:

Answer 1

Answer:  

Particulars	Amount $
Purchase price of machine	28,000
Less: Discount availed (28,000*1%)	(280)
Net purchase price	27,720
Add: Freight charges	450
Mounting and power connection	985
Assembling cost	600
Labor installation charge	310
Total Acquisition costs	30,065

NOTES:

a) Cost of equipment includes every cost which has been incurred from the point of purchase to installation of equipment.

b) Here XYZ Enterprises incurred cost in relating damages repair of $380 but this cost is not an reasonable expenditure which makes the equipment or machine ready for intended use. So, It is not added to equipment cost.

c) The insurance amount of $200 per month does not form part of the cost as it is incurred after the commencement of commercial operation and does not add any value to the machine.

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