Reference no: EM133002729
PROBLEM 1 - Capitalizable Cost of Machinery - Josiah Co. acquired a new machine. Details of the acquisition are as follows:
Purchase price including VAT 1,568,000
Cost of water device to keep machine cool 8,000
Cost of the safety rail and platform surrounding machine 12,000
Installation cost, including site preparation and assembling 20,000
Fees paid to consultants for advice on acquisition of the Machinery 10,000
Repair cost of the machine damaged while in the process Of installation 5,000
Loss on premature retirement old machine 18,000
Other non-refundable sales tax 13,000
Cost of training for personnel who will use the machine 25,000
Cost of removing old machine 10,000
CASE NO. 1: Assume that Josiah Co. is a VAT registered entity, determine the amount of cost of the Machinery to be capitalized.
CASE NO. 2: Assume that Josiah Co. is non-VAT registered entity, determine the amount of cost of the machinery to be capitalized.
PROBLEM 2 - Capitalizable Cost of Land, Building and Land Improvements Old Building Will Be Demolished - On March 1, 2021, Romie Milan Co. acquired land and building by paying 9,000,000 and assuming a mortgage of 1,000,000. The old building will be demolished for the construction of a new building.
1. Unpaid real property taxes up to the date of acquisition 14,000
2. Cost of option of the acquired properties 20,000
3. Excavation cost 12,000
4. Escrow fees on the properties acquired 11,000
5. Cost of relocating and reconstructing the property belonging To others in order to acquire the properties 23,000
6. Payment to real estate agent 40,000
7. Payments to tenants of the properties to induce them to Vacate the premises 3,000
8. Legal fees for contract to purchase the land 11,000
9. Cost of removing trees from the land 70,000
10. Building permit and licenses 60,000
11. Architect fee 50,000
12. Materials used in construction 600,000
13. Driveway and walk to building (part of building plan) 30,000
14. Payment for claim for injuries not covered by insurance 40,000
15. Broker's fee on the properties acquired 10,000
16. Rental fees generated on the portion of the building being Used as a parking site 23,500
17. Cost of paving parking lot adjoining building 50,000
18. Other overhead cost incurred as result of construction 220,000
19. Service equipment and fixtures made a permanent part of the Structure 11,000
20. Safety fence around construction site 35,000
21. Removal of safety fence 9,800
22. Demolition cost of the old building 33,000
23. Proceeds from salvage of the demolition 4,000
Questions - Based on the above data, determine the adjusted cost of the following:
CASE NO. 1: Assume that on the date of acquisition the building is usable but likely to be demolished right away and the land and building have fair values of ?7,000,000 and ?1,000,000 respectively.
1. Land
2. The allocated cost of the building that will be charged to loss
3. New building
4. Land improvements
PROBLEM 3 - Acquisition on Account - On January 1,2021, Judycel Co. acquired on equipment for 500,000 on account with term of 3/10, n/30. Additional costs incurred are as follows:
Freight and insurance 15,000
Cost of testing and trial runs 12,000
Proceeds from selling the samples produced during Testing and trial runs 2,000
Training cost of staff who will operate the equipment 13,000
The account was paid on January 10, 2021.
How much is the cost of the equipment?