Question

Somerset Company acquired a piece of equipment with a list price of $200,000 for $162,000. Freight to Somerset's location was $4,000. Installation and testing costs were $9,500. An old piece of equipment was scrapped as a result of this new purchase. The old piece of equipment had an undepreciated value (net book value) of $8,000. The new piece of equipment is expected to have a 10 year life and a salvage value of $15,000. What is the total value assigned to the new piece of equipment?

Answer 1

$175,500

Step-by-step explanation:

According to IAS 16 Property Plant and Equipment (PPE), the cost of an item of property plant and equipment is the total cost incurred in making the asset (or item of PPE) available for use.

This cost includes the cost of acquisition, associated tax, installation cost etc.

The total value assigned to the new piece of equipment

= $162,000 + $4,000 + $9,500

= $175,500