Blossom Corporation acquired new equipment at a cost of $110,000 plus 6% provinc
ID: 2558221 • Letter: B
Question
Blossom Corporation acquired new equipment at a cost of $110,000 plus 6% provincial sales tax and 6% GST. (GST is a recoverable tax.) The company paid $1,980 to transport the equipment to its plant. The site where the equipment was to be placed was not yet ready and Blossom Corporation spent another $460 for one month’s storage costs. When installed, $210 in labour and $300 of materials were used to adjust and calibrate the machine to the company’s exact specifications. The units produced in the trial runs were subsequently sold to employees for $440. During the first two months of production, the equipment was used at only 12% of its capacity. Labour costs of $3,200 and material costs of $1,600 were incurred in this production, while the units sold generated $5,000 of sales. Blossom paid an engineering consulting firm $11,200 for its services in recommending the specific equipment to purchase and for help during the calibration phase. Borrowing costs of $640 were incurred because of the one-month delay in installation.
Determine the capitalized cost of the equipment.
Explanation / Answer
All cost incurred to make equipment ready for use is to be capitalized and added to cost of equipment
sale of trial units
**monthly production is to be recorded in income statement .
Purchase cost 110000 sales tax [110000*.06] 6600 Transportation 1980 Storage cost 460 Installation cost [210+300] 510sale of trial units
(440) Borrowing cost 640 engineering fees 11200 capitalised cost 130950