Assignment 2.4

Additional Problem 4 Oriole Co. recently installed some new computer equipment. To prepare for the installation, Oriole had some electrical work done in what was to become the server room, costing $18,000. The invoice price of the server equipment was $190,000. Three printers were also purchased at a cost of $1,800 each. The software for the system was an additional $42,000. The server equipment was believed to have a useful life of eight years, but due to the heavy anticipated usage, the printers were expected to have only a four year useful life. The software to run the system was estimated to require a complete upgrade in five years to avoid obsolescence. Additionally, it cost $10,000 for delivery. All of the above costs were subject to a 5% non-refundable provincial sales tax. During the installation, a training course was conducted for the staff that would be using the new equipment, at a cost of $9,500. Assume that Oriole follows IFRS, and that any allocation of common costs is done to the nearest 1% (e.g., 80%, 6%, 14%). (b)  Assume that Oriole decides to capitalize the following components of the computer system: server equipment, printers, and software. Calculate the amount to be capitalized for each of these asset groups.  (Round percentage to 0 decimal places, e.g. 52%. Round answers to 0 decimal places, e.g. 5,275.) Cost Server equipment   $ Printers   $ Software   $ Solution Additional Problem 4 Cost of server equipment: Electrical work in server room   $18,000 226, 905 5, 880 45, 780

Server equipment   190,000 5% PST   10,400 Subtotal   218,400 81% of delivery costs**   8,505     $226,905 Cost of printers: Cost of printers (3 × $1,800)   $5,400 5% PST   270 Subtotal   5,670 2% of delivery costs***   210     $5,880 Cost of software: Cost of software   $42,000 5% PST   2,100 Subtotal   44,100 16% of delivery costs****   1,680     $45,780 Common costs allocated: Delivery  $10,000 5% PST   500     $10,500 * Total cost (subtotals)   =  $218,400 + $5,670 + $44,100      =  $268,170 **Server equipment   =  $218,400 ÷ $268,170*      =  81% ***Printers   =  $5,670 ÷ $268,170*      =  2%