Question

Find the capitalized cost for the following information:

Note: Write a positive number, with at least one digit after the decimal point.

First cost, $	210,000
Cost at the end of year 4	190,000
Annual cost, $	38,000
Periodic costs, every 5 years, $	87,000
Salvage value, $	20,000
Interest rate, %	10

Answer 1

Solution

The capitalized cost will be First cost $210000.

Other costs given will not be capitalized due to following reasons:

Cost at the end of the year 4 is the written down value so it will not be capitalized.

Annual cost is the cost for running business throughout the year which will be expended therefore not capitalized.

Periodic costs are the overheads that the company incurs for running day to day activities so it is not capitalized.

Salvage value is the part of first cost so it is already capitalized.

So the capitalized cost will be the first cost i.e. $210000.

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