ZETO Company acquired a new construction crane. The crane cost $1,000,000. In addition, Zeto paid delivery cost of $50,000, setup and installation of $75,000, and truck repairs of $5,000 (it seems that during setup, a large beam was accidentally dropped on the hood of one of Zeto's trucks). ZETO should record the crane in its accounting records at: a. $1,000,000 b. $1,050,000 c. $1,075,000 d. $1,125,000(answer) e. $1,130,000 Hi can you help me on this question? I know the answer is d)$ 1,125,000 but i just need a step by step explanation on how to get to the answer. thanks in advance!
The following costs needs to be capitalised:
Crane cost $1,000,000
Delivery cost $ 50,000
Installation $ 75,000
Total cost $ 1,125,000
As all the above costs are incurred to bring in a new asset (Crane in this question) to the present location and condition such costs as capitalised under Fixed Assets.
Repairs of $ 5,000 is incurred not to bring in a new asset or to improve the efficiency or functionality of a new asset and enhance it from its previously assessed performnce. Therefore repairs needs to be expensed out and shown in Profit and Loss as expenses.
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