ACCA Applied Knowledge · Financial Accounting · Tangible non-current assets
Rio Co paid the following in the year for a new factory machine: purchase price $80,000, delivery $2,500, installation $4,000, a one-year maintenance contract $3,000, and repainting of an existing machine $1,500. What amount should be capitalised for the new machine?
The capitalised cost is $86,500, being the purchase price, delivery and installation. The maintenance contract and the repainting of an existing machine are revenue expenditure and are charged to profit or loss, not added to the cost of the new machine.
- A$86,500Correct
- B$89,500
- C$91,000
- D$80,000
Explanation
Capitalise purchase price 80,000 + delivery 2,500 + installation 4,000 = 86,500. The maintenance contract and repainting are revenue expenses. $89,500 wrongly adds the maintenance contract; $91,000 adds both revenue items.
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