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小 發表於 2015-4-18 03:45 PM (第 3295 天)
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Expense and Asset difference
Holland Manufacturing Company purchased a new machine. It is clear that the invoice price of the new machine should be capitalized, but the owner is not sure whether the following items should be capitalized (verb form of the term ASSET) or treated as an expense. He also wants to know WHY.
1. The transportation cost to bring the machine from an overseas location to the plant of Holland (“Holland Plant”).
2. The new machine is heavier than the old machine it replaced; consequently, the foundation under the machine has had to be strengthened by the installation of additional steel beams. Should this cost be added to the cost of the building, cost of the machine or be treated as expense.
3. The installation of the machine took longer time and was more costly than expected. In addition to time spent by the regular maintenance crew on installation, it became necessary to hire an overseas engineer to assist in the installation to get the machine running properly.
(a) The costs of the overseas engineer include consultant’s fees, air tickets, hotel accommodation, meals and transportation costs from the hotel to the Holland Plant.
(b) Moreover, the Holland plant superintendent and foreman spent a considerable time assisting in the installation work instead of overseeing the production line’s operations.
(c) Before the new machine did not work properly, a large amount of materials were spoiled during trial runs.
How should these costs be treated and why?
4. Holland also paid a state sales tax (levied by the home country of the supplier) on purchasing the machine from an overseas supplier.
5. In connection with the payment for the new machine, the overseas supplier was willing to accept Holland Manufacturing Company’s old machine as partial payment. The amount allowed as a trade-in was larger than the book value (unused amount) of the old machine. Should the difference be treated as a gain on disposal of the old machine or a reduction in the cost of the new machine or to be dealt with in some other ways?