a. What expenditures should be capitalized when equipment is acquired for cash?
b. Assume the market value of equipment is not determinable by reference to a similar purchase for cash. Describe how the acquiring company should determine the capitalized cost of equipment purchased by exchanging it for each of the following:
i. Bonds having an established market price.
ii. Common stock not having an established market price
iii. Similar equipment not having a determinable market price.
c. Describe the factors that determine whether expenditures relating to property, plant, and equipment already in use should be capitalized.
d. Describe how to account for the gain or loss on the sale of property, plant, or equipment.
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Answer to question A
Equipment is the fixed asset of the company and any expenditure incurred for purchasing the equipment should be capitalized till making the equipment fit to function in the factory.
Following expenditures with respect to purchase of asset should be capitalized:
1. Purchase price of the equipment paid to the vendor.
2. Any commission or fees paid to brokers towards purchase of the equipment.
3. Freight expenses incurred for carrying the equipment from the place of the vendor to the factory site.
4. Any technical fees paid to engineer or technician to make the equipment fit to produce the goods.
5. Any installation charges paid to the workers for fitting the equipment in the factory.
6. Any additional expenses incurred towards additional parts to the equipment to make the equipment fit for production.
7. Any packing expenses borne by the buyer.
8. Broker fees ,if any
Answer to question B
The cost of the equipment is the amount paid ...
Accounting for property, plant and equipment is examined.