Question

Watauga Company purchased equipment on July 1, 2017 for $70,000. Sales tax on the purchase was $700. Other costs incurred were freight charges of $800, insurance during shipping of $ 150, repairs of $1,300 for damage during installation, and installation costs of $1, 050. What is the cost of the equipment?

A. $70,000
B. $74,000
C. $71,500
D. $72,700

Answer 1

$72,700

Step-by-step explanation:

According to IAS 16, the cost of an asset includes all the costs that are related to its purchase and until it is put to use. These costs include purchase price , commission , transportation , installation legals and warranties.

Please note that the cost of repairs during installation is not capitalized but expended,

Workings.

Cost of purchase - $70000

Sales tax $700

Freight - $800

Insurance - $150

Installation cost - $1050

Total Cost - $72,700