Cost of acquistion-capitalizable costs-current expense
Course:- Managerial Accounting
Reference No.:- EM1349755

Assignment Help
Assignment Help >> Managerial Accounting

The invoice of a machine is $40,000. Various other costs relating to the acquistion and installation of the machine including transportation, electrical wiring, special base, and so on amount to $7,500. The machine has an estimated life of 10 yrs, with no residual value at the end of that period.

The owner of the business suggests that the incidental costs of $7,500 be charged to expense immediately for the following reasons:

1. If the machine should be sold, these costs can not be recovered in the sales price.

2. The inclusion of the $7,500 in the machinery account on the books will not necessarily result in a closer approximation of the market price of this asset over the years, because of the possibility of changing demand and supply levels.

3. Charging the $7,500 to expense immediately will reduce federal income taxes.


Discuss each of the points made by the owner of the business.

Put your comment

Ask Question & Get Answers from Experts
Browse some more (Managerial Accounting) Materials
Compute the quality costs as a percentage of sales by category and in total for each year. Explain why quality costs increased in total and as a percentage of sales in 2005,
"Breakeven analysis isn't very useful to the company because companies require to do more than break even to survive in the long run." Describe why you agree or disagree wit
Analyze whether to invest in purchase of the supercomputer, the software development manager had considered the currently, the company is paying an average of $40,000 per yea
Expected manufacturing costs for Imperial Data Devices are as follows: Estimate manufacturing costs for production levels of 11,000 units, 13,500 units, and 16,000 units per m
Actual production and sales were 62,900 coffee mugs, actual direct materials usage was 10,000 lbs. at an actual price of $0.17 per lb., actual direct labor usage was 202,000
Both Return on Investment (ROI) and Economic Value Added (EVA), when used as performance measures in an organisation, encourage managers to be short-term in their focus and
Fixed production costs (other than $3,000 of depreciation expense) are expected to increase by 2 percent. Fixed production costs requiring payment are paid in the quarter th
Prepare separate journal entries to record the transfer of each proprietorship's assets and liabilities to the partnership and journalize the additional cash investment by eac