Question

X Ltd purchased a new motor vehicle for $50 000 less a trade-in allowance of $10 000 on its old vehicle. The balance of $40 000 was paid in cash. The company name and logo are painted onto the sides and roof of the vehicle at a cost of $2 000. X Ltd installs premium brakes and makes suspension adjustments at a cost of $5 000. A petrol card for use with the new vehicle is acquired at a cost of $500. The new vehicle collided with pot hole after being picked up from the dealership resulting in the replacement of 2 wheel rims and tyres at a cost of $3 000. What is the cost of the new vehicle for accounting purpos

Answer 1

The multiple choices are:

a. $40 000

b. $50 000

c. $57 000

d. $60 500

C is the correct option,$57,000.

Step-by-step explanation:

The cost of the vehicle initially was $50,000 because the cash of $40,000 which would debited to motor vehicle and credited to cash.Also,the trade-in-allowance is $10,000 debited to new motor vehicle and credited to old motor vehicle account.

Besides,the cost of name and logo would also form part of the cost of the motor vehicle as well as the cost of suspension adjustment.

The rationale is here is that cost of an asset includes cost of bringing the asset to its present location and condition.

Cost=$50,000+$2,000+$5000=$57,000