Question

1. Southridge Company incurred the following costs related to its purchase of a new assembly line:...

1. Southridge Company incurred the following costs related to its purchase of a new assembly line: Purchase cost: Php 9,435,000 (including Php 435,000 freight and purchase taxes)

Recoverable purchase taxes: Php 960,000

Irrecoverable purchase taxes: Php 870,000

Installation of assembly line: Php 975,000

Training of employees: Php 195,000

Estimated repair and maintenance costs over useful life: Php 500,000

What is the amount to be recognized as asset related to the assembly line?

a.

Php 11,280,000

b.

Php 9,450,000

c.

Php 9,645,000
Business   Accounting   
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Answer #1
Php
Cost of New assembly    9,435,000.00
Less:Recoverable Tax     (960,000.00)
Add:Installation cost        975,000.00
Asset to be Recognized 9,450,000.00

Answer: b) Php 9,450,000

Note:

1.As per IAS 16-Property Plant & Equipment, Employee Training cost will not be part of Assets capitalization. unless those cost is directly associated to bring assets to required condition & use as intended by management.

2. Repair & Maintenance cost can not be part assets capitalization..

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