Answer to Question #207368 in Accounting for Kkkk

Question

On January 1,2021, Judycel Co. acquired on equipment for ₱500,000 on account with term of 3/10, n/30. Additional costs incurred are as follows:

Freight and insurance ₱15,000

Cost of testing and trial runs 12,000

Proceeds from selling the samples produced during

Testing and trial runs 2,000

Training cost of staff who will operate the equipment 13,000

The account was paid on January 10,2021.

How much is the cost of the equipment?

Answer 1

Solution:

The cost of equipment normally includes the purchase price, including freight, import duties, and insurance. It also includes any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management, such as labor expenses from the asset acquisition, delivery costs, site inspection and preparation, installation, testing costs on whether the asset is functioning properly and professional fees.

The income generated during the course of the asset development and bringing it to the condition necessary for it to be capable of operating efficiently as intended such as income from selling samples produced when testing the equipment is deducted from the cost of the equipment.

 

The cost of the equipment breakdown is as follows:

Purchase price of the equipment =                                     500,000

Add: Freight and insurance =                                              15,000

Add Directly attributable costs:

Cost of testing and trial runs =                                            12,000

Training cost of staff who will operate the equipment =    13,000

Total costs =                                                                       540,000

Less: Proceeds from selling the samples produced

During Testing and trial runs =                                              (2,000)

Total cost of the equipment =                                             538,000

The cost of the equipment = ₱538,000