Reference no: EM132615437
PROBLEM 1 - On March 1, 2022 Luca Co. purchased an upgrade package from Tofac Co. at a cost of 18,000 for the machine it originally purchased in 2020. The upgrade took a total of 2 days where new components were added to the machine. Luca agreed to purchase the package as the new components would lead to a reduction in production time per unit of 15% which will give the company an additional income of 6,000 for the first year of use. This will enable Luca to increase production without the need to purchase a new machine.
Questions:
1. Should the additional expenditure be capitalized or expensed?
2. How much should be capitalized as part of the machine?
3. Journal entry to record the above transactions.
PROBLEM 2 - On January 1, 2020 Donita Co. reinstalled its equipment transferring from north branch to its south branch at a cost of 261,972. The capacity and productivity of the equipment increases since it has added some new features amounting to 11,268 and attached it on the equipment for enhanced efficiency. During installation the equipment's handle was bent and had to be replaced for 2,000. After its trial run for one month, the company was able to increase its output by 3,000.
Questions:
1. How much should be capitalized as part of the equipment?
2. Journal entry to record the above transactions.
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