Question

Kegler Bowling installs automatic scorekeeping equipment with an invoice cost of $155,000. The electrical work required for the installation costs $16,275. Additional costs are $3,255 for delivery and $11,170 for sales tax. During the installation, a component of the equipment is carelessly left on a lane and hit by the automatic lane-cleaning machine. The cost of repairing the component is $1,505. What is the total recorded cost of the automatic scorekeeping equipment? Invoice cost 155,000 Electrical work required for installation 16,275 delivery costs 3,255 sales tax 11,170 repair costs 1,505 total 187,205 included/excluded (column dr marchinery (column) dr expense (column)

Answer 1

As per accounting principal , those costs are to be capitalised in equipment which are ordinary and necessary to get the equipment in place and in condition for its intended use.

Such amounts include the purchase price ,freight, ordinary installation, initial setup/calibration/programming, and other normal costs associated with getting the equipment ready to use.

These costs are termed capital expenditures and are assigned to an asset account.

In contrast, other expenditures may arise that are not “ordinary and necessary,” or benefit only the immediate period. These costs should be expensed as incurred.

An example is repair of abnormal damage caused during installation of equipment i.e.$1505 is to be expensed out.

Type cost

Debited to Machinery

Debited to Repair expense

Invoice cost

$155,000.00

Installation cost

$16,275.00

Delivery Cost

$3,255.00

Sales Tax

$11,170.00

Repairing Cost (abnormal)

$1,505.00

Total

$185,700.00

$1,505.00