Problem 1Knight Company purchased an equipment for P369,600 to be used in the construction of MRT-3. Thecompany had to pay the following in relation to the equipment:Import dutiesP10,000Non-refundable taxes15,000Shipping costsCost of testing2,0001,200Installation costs1,800Other information:• The company is required to dismantle the equipment at the end of its useful life. The companyestimates the dismantling costs to be P50,000. The relevant discount rate is 10%.• The equipment has a useful life of 5 years.How much is the initial cost of the equipment?• The purchase price includes input vat of P39 600How much is the initial cost of the asset?

Purchase price Less: Trade discount/Rebate Add: Import Duties Add: Non refundable taxes Add:…

Answered: How much is the initial cost of the…

Business

Accounting

How much is the initial cost of the asset?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Q: The difference between book value of the asset with the proceeds receive from its sale, with result…

A: Assets: It refers to the economic value of all resources owned by the business at a given point in…

Q: Identify the cash flow series associated with production or service over thelife of the asset?

A: Definition: Cash inflows: The amount of cash received by a company from the operating, investing,…

Q: Demonstrates the difference between depreciation costs as expenses and the cash flow generated by…

A: Depreciation expense: Depreciation expense is a non-cash expense, which is recorded on the income…

Q: What costs should be capitalized for a self constructed asset?

Q: Is long term investment is classified as non-current assets?

A: Generally, the liquidity of the assets plays a significant role in determining whether they are…

Q: What would decrease the internal rate of return of a proposed asset purchase?

A: Internal rate of return is a method of calculating an investment’s rate of return. The term internal…

Q: What are the Gain Taxes on Asset Disposals?

A: When a asset is disposed, if the value realised on such disposal is more than the carrying amount of…

Q: Residual value is: A. Also called residual value. B. Also called scrap value. C. An estimate of the…

A: The depreciation expense is charged on fixed assets as reduced value of the fixed asset with usage…

Q: Do I have to include depreciation when computing net present value?

A: Depreciation is said to be none cash expense so there is no out flow of cash when depreciation…

Q: What is the process of allocating the cost of natural resources to expense as they are used?

A: Natural resources usually include oil reserves, coal deposits, and mineral deposits. The natural…

Q: Explain the historical cost concept as it applies to long-term operational assets. Why is the book…

A: The cost of a fixed asset include every expenses incurred in bringing the asset into present…

Q: What is the DuPont method of analysis and how does it break down return on assets

A: Given : This question tells about the DuPont method of analysis and how does it break down return on…

Q: Explain how to determine the cost of an asset.

Q: What factors would result in property increasing in value over a holding period?

A: One holding period is the length of time a creditor retains or the time between purchasing and…

Q: How do you know the ratesw on straight line depreciation?

A: Solution:- The following way to find depreciation rates on straight line depreciation method as…

Q: When using IFRS, an asset's recoverable value is

A: International financial reporting standards (IFRS) are a set of accounting rules and guidelines that…

Q: When is a project is said to be a net investment?

A: Accounting is primarily concerned with identifying, recording, measuring, summarizing transactions…

Q: What refers to the present worth of cost associated with an asset for an infinite period of time?…

A: Payback period is the time period of recovery of initial cash outflow from the cash flows of the…

Q: the difference between a current asset and a non-current asset? Provide examples of each.

A: Current asset and non current assets both are shown under the asset of the company balance sheet

Q: In what ways might a depreciable asset's estimated service life be influenced?

A: The Answer

Q: How do we decide whether to capitalize (record as an asset) or expense a particular cost?

A: Expensing a cost implies that it is included on the income statement and is subtracted from revenue…

Q: Explain Land Acquisition and Development Costs?

A: Land acquisition: It is the process by which the government acquires private property for a public…

Q: What are the factor payments for land, labor, and capital?

A: The question is based on the concept of factor payment ,in financial economics factors are consider…

Q: Why should the total costs of the machine be viewed as an asset and allocated against the future…

Q: Which costs might be included in the initial cost of equipment?

A: Property, plant and equipment: Property, plant and equipment are the tangible assets which are…

Question

Problem 1
Knight Company purchased an equipment for P369,600 to be used in the construction of MRT-3. The
company had to pay the following in relation to the equipment:
Import duties
P10,000
Non-refundable taxes
15,000
Shipping costs
Cost of testing
2,000
1,200
Installation costs
1,800
Other information:
• The company is required to dismantle the equipment at the end of its useful life. The company
estimates the dismantling costs to be P50,000. The relevant discount rate is 10%.
• The equipment has a useful life of 5 years.
How much is the initial cost of the equipment?
• The purchase price includes input vat of P39 600
How much is the initial cost of the asset?

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1 Initial Cost of the asset:

VIEW

Step 2 Calculation of initial cost of asset to be recognised:

VIEW

Step 3 Notes:

VIEW

Step by step

Solved in 3 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions

what is the ultimate purpose of long-term assets? How should the cost of these assets be allocated over the asset's useful life? Why is depreciation not synonymous with valuation?
What is meant by depreciation for the cost approach?
The difference between the purchase cost of an asset and its value at the end of the life is known as a. Residual value b. Scrap Value c. Depreciable cost d. Amortization cost
What is the effective life of an asset?
What are the advantages of using the Dupont System to analyze the Return on Assets?
What would the result of Capitalizing the purchase cost over time?
What is the Importance of the Residual Value of Real Estate?
How is the fixed asset turnover ratio computed? Explainits meaning.
What is a sunk cost, and if included in a project how should they be treated?
What is the difference between the cost of a fixed asset and its accumulated depreciation called? Group of answer choices book value current value fixed value equity value
What is the objective in identifying the costs of an asset?
How can we determine the unit profit of operating an asset?