Question

You ordered a machine for your business on 15 October 2020 from American Machines (Pty) Ltd, a supplier situated in the USA. The following information in relation to the machine purchased has been provided: . The machine was shipped, FOB shipping point, on 1 November 2020 and the pur- chase price of $50 000 was paid in full on the same day. The shipment arrived in Cape Town harbor on 1 December 2020. . On 5 December 2020, your business paid R20 000 for transportation fees to have the machine delivered to your factory premises. On 13 December 2020, your company paid R15 000 for special services acquired from an engineering company on to install the machine. On 2 January 2021, additional equipment had to be purchased to install the machine on the right platform for it to work as initially intended. Your business paid R140 000 for this additional equipment. The machine was finally ready to be used on 1 February 2021. The following exchange rate data was made available: Transaction detail: Date: Rand per dollar Order date 15 Oct 2022. 14.70 Shipping/Payment date 1 Nov 2020. 15.10 Harbour arrival date. 1 Dec 2020 17.00 Factory arrival date 5 Dec 2020 16.50 Ready to be used date 1 Feb 2021 14.00 4.1 Calculate the initial cost price at which the machine should be recognised. ​

Answer 1

To calculate the initial cost price at which the machine should be recognized, we need to consider the purchase price, transportation fees, special services, and the cost of additional equipment.

Purchase price: $50,000

Using the exchange rate data, we can convert the purchase price to Rand at the order date:

$50,000 * 14.70 Rand/dollar = 735,000 Rand

Transportation fees: R20,000

No conversion is required for transportation fees as it is already in Rand.

Special services: R15,000

No conversion is required for special services as it is already in Rand.

Additional Equipment: R140,000

No conversion is required for the cost of additional equipment as it is already in Rand.

Now, let's calculate the initial cost price by adding up all the costs in Rand:

Initial cost price = Purchase price + Transportation fees + Special services + Additional equipment

Initial cost price = 735,000 Rand + 20,000 Rand + 15,000 Rand + 140,000 Rand

Initial cost price = 910,000 Rand

Therefore, the initial cost price at which the machine should be recognized is 910,000 Rand.