FA – May 2021 – L1 – SA – Q8 – Accounting for Property, Plant, and Equipment (IAS 16)

Calculate the initial cost of equipment including additional expenses.

Question

An entity purchased equipment for ₦20,000. The equipment was transported at ₦86, installation cost was ₦125, abnormal waste of materials was ₦15,000, and training cost of staff on the use of the machine was ₦255. How much should be recorded as the initial cost of the equipment?
A. ₦20,000
B. ₦20,086
C. ₦20,125
D. ₦20,211
E. ₦20,466

Answer

Answer:
D. ₦20,211

Explanation:
The initial cost of the equipment includes all costs directly attributable to bringing the equipment to its location and ready for use, excluding abnormal costs.

Initial cost = ₦20,000 + ₦86 + ₦125 = ₦20,211

Tags: Capitalization, Cost measurement, PPE
Level: Level 1

Topic: Accounting for Property, Plant, and Equipment (PPE) IAS 16
Series: MAY 2021

Uploader: Kwame Aikins