ABC Company purchased an asset which has the following information: 1. List price of $60000 2. Sales tax of $ 3000 3. Freight charges of $1500 4. Installation charges of $5000 5. Advertising charges of $10000 6. Interest charges of $2000 Requirement: required: A. Which of the above payments must be included in the totala acquisitioncost. B. Calculate the total acquisition cost of the asset.
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
ABC Company purchased an asset which has the following information:
1. List price of $60000
2. Sales tax of $ 3000
3. Freight charges of $1500
4. Installation charges of $5000
5. Advertising charges of $10000
6. Interest charges of $2000 Requirement:
required:
A. Which of the above payments must be included in the totala acquisitioncost.
B. Calculate the total acquisition cost of the asset.
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Expert Answer
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Step 1
The cost of the asset includes all those cost which makes the asset relevant for it's intended use. These expenditure include the non refundable taxes, import duties, freight charges and installation
The cost of the asset excludes those expenditures for promotional activities, administrative and other overhead expenditures, expenditure on captive consumption, expenditure incurred for opening and inaugurating new facilities.
In this case advertising expenditure is excluded and Interest depends on the various factors whether the interest to be included or not. Here assuming that the asset is ready for it's intended use and therefore excluding interest expense.
Step 2
Cost of the asset = List price + sales tax + freight charges + Installation charges
= $60000 + $3000 + $1500 + $5000
= $69500
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