Question

The bank required Rollin Company to get an appraisal on their manufacturing equipment in order to ensure it had value to provide security for their loan. These appraisal costs were $1998.

Additionally, during the year, Rollin Company sold a separate capital asset that it has owned for several years. To determine the selling price of this asset, the Company had an appraisal done. These appraisal costs were $880.

In reconciling accounting net income to net income for tax purposes, Rollin Company will need to add back ??? as a result of these appraisal expenses.

Answer 1

1. The appraisal cost incurred on their manufacturing equipment in order to ensure it had value to provide security for their loan amounting to $1998. These expenses should not be recorded entirely and should be amortized as a loan cost with interest expenses over the life of the loan because of the matching principal. Hence these expenses are allowable from income but not entirely.

2.Additionally, during the year, Rollin Company sold a separate capital asset that it has owned for several years. To determine the selling price of this asset, the Company had an appraisal done. These appraisal costs were $880 treatment of the same is to capitalize in the cost of the asset. Hence not deductible for income tax purposes. Thus added back while calculating tax.