ACCOUNTING Lecture Notes - Intangible Asset, Historical Cost

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kgazfazb

9 Nov 2022

School

Madurai Kamaraj University

Department

Accounting

Course

ACCOUNTING

Professor

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Document Summary

Accounting cost concept states that all assets are recorded in the books of accounts at their purchase price, which includes cost of acquisition, transportation and installation and not at its market price. It means that fixed assets like building, plant and machinery, furniture, etc are recorded in the books of accounts at a price paid for them. For example, a machine was purchased by xyz limited for rs. 500000, for manufacturing shoes. An amount of rs. 1,000 were spent on transporting the machine to the factory site. In addition, rs. 2000 were spent on its installation. The total amount at which the machine will be recorded in the books of accounts would be the sum of all these items i. e. rs. 503000. This cost is also known as historical cost. Suppose the market price of the same is now rs 90000 it will not be shown at this value.

Related Questions

Bolt Company purchased a machine for use in its operations thathad an invoice price of $80,000 excluding sales tax. A 4% sales taxwas levied on the sale. Terms were net 30. The company estimatedthe total cost of hauling the machine from the dealerâs warehouseto the companyâs plant at $5,600, which did not include a fine of$1,600 for failure to secure the necessary permits to use citystreets in transporting the machine. In delivering the machine toits plant, a Bolt employee damaged the truck used; repairs cost$3,600. The machine was also slightly damaged with repair costsamounting to $1,600. Bolt incurred installation costs of $32,000that included the $4,000 cost of shoring up the floor under themachine. Testing costs amounted to $2,400. Safety guards wereinstalled on the machine at a cost of $640, and the machine wasplaced in operation. imageRequired Prepare a schedule showing theamount at which the machine should be recorded in Boltâsaccounts.

orchidcrow953

Indicate whether the items (a) through (h) are capital orrevenue expenditures in the spaces provided above. C = Capital, R =Revenue.

Martinez Company purchased a machine on January 1, 2014. Inaddition to the purchase price paid, the following additional costswere incurred:

______ (a) sales tax paid on the purchaseprice,

______ (b) transportation and insurancecosts while the machinery was in transit from the seller,

______ (c) personnel training costs forinitial operation of the machinery,

______ (d) annual city operatinglicense,

______ (e) major overhaul to extend the lifeof the machinery,

______ (f) lubrication of the machinerygearing before the machinery was placed into service,

______ (g) lubrication of the machinerygearing after the machinery was placed into service, and

______ (h) installation costs necessary tosecure the machinery to the building flooring.

jadekoala82

The invoice price of a machine is $50,000. Various other costsrelating to the acquisition and installation of the machineincluding transportation, electrical wiring, special base, and soon amount to $7,500. The machine has an estimated life of 10 years,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 followingreasons.

1. If the machine should be sold, these costs cannot be recoveredin the sales price.
2. The inclusion of the $75,00 in the machinery account on thebooks will not necessarily result in a closer approximation of themarket price of this asset over the years, because of thepossibility of changing demand and supply levels.
3. Charging the $7,500 to expense immediately will reduce federalincome taxes.

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

blushtermite843

ACCOUNTING Lecture Notes - Intangible Asset, Historical Cost

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