Question

ABC Company acquired manufacturing equipment at an invoice price of $80,000 and paid $750 to have it delivered to the factory. $400 was spent to repair a door that was damaged while installing the equipment. At what amount should this equipment be recorded on the company’s books?

a. $80,000

b. $80,400

c. $80,750

d. $81,150

My Question: I know that the invoice price and cost for transporting the equipment is included but why is the $450 for repairing the door not included in the price?

Answer 1

Cost Equipment will comprise of Invoice price (Cost) and costs which are relating to purchase of equipment i.e, relating to its transportation and Installation. Therefore Invoice price -$80,000 and delivery cost -$750 are the cost to be capitalised as cost of equipment = $80000 + $750 =$80750.

Option c. $80,750 is the correct answer

$450 is relating to repair of door, it is not related to purchase and Installation of equipment. it is just incidental cost but not related to equipment . therefore it should not be included in the cost of Equipment.

Cost to repair door is a revenue expenditure.

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