And I “thought” I knew this cold… Which of the following would be excluded when determining the acquisition cost of plant and equipment? a. The invoice price. b. Administrative costs from purchasing department. c. The cost of replacement parts that come with the asset. d. Insurance expenses. - Dinesh S
A?
b. Administrative costs from purchasing department.
d?
I believe Invoice Price, cost of replacement parts that come with the equipment and insurance expenses for transportation of the equipment to its place of assembly are all legitimate expenses that can be capitalized on the equipment cost.
B. Administrative costs from purchasing department…assume that in this context talks about the purchaser in that department that is responsible for the purchase of the PPE…it is expensed off. Well wont that be nice if that can be capitalised? Shows that the purchasing department is of great value…=)
i didnt look at it as being insurance expensses for transportation… but now that you say that it make alot of sense…
d
B
D Isn’t insurance going to be a recurring expense though?
I believe in this problem they are talking of insurance expenses related to acquisition of the equipment, and transportation… and Purchasing Dept. Operating costs are too much of an Administration expense to be capitalized.
I don’t know lol. I see what you’re saying, but wouldn’t transporation/shipping insurance costs be included in the Invoice?? I think I might just be over scrutinizing the answers, but B seems too obvious.
We are all over the map here. I’m going to guess D.
I would guess D (I wouldn’t have assumed insurance expenses only relates to acquisition, but would have assumed it related to periodic insurance on the equipment itself) I don’t think it’s B because any cost involved with acquiring an asset and converting it into a state to be used is capitalized.
D (assuming insurance relates to the ongoing insirance expenses rather than transportation insurance). If the admin cost of purchasing are incurred while acquiring the asset, i think it should be capitalized.
Dimes27 Wrote: ------------------------------------------------------- > I don’t think it’s B because any cost involved > with acquiring an asset and converting it into a > state to be used is capitalized. Exactly along the lines of what I was thinking. If not for the acquisition, there wouldn’t have been an admin cost. So capitalizing is rightfully justified (imho). 
Badly worded question since it can obviously be interpreted multiple ways. IMO the answer depends on what they mean for answers B and D. B - if they bring someone in specifically to evaluate this particular asset purchase then the “admin” costs are part of the asset purchase. More likely it’s simply someone already on the purchasing payroll, and therefore should not be included. D - if the insurance expenses are related specifically to the transport and installation (a normal insurable event for asset purchases) it should be considered part of the asset purchase. If they’re talking about ongoing insurance after the asset is delivered and accepted then it should be excluded. I’ll go with B as the most likely correct answer…
I will go with B. We have to assume that insurance expense is related to transportation of the asset.
Guys the answer is ‘B’ as per Passmaster but it could be Debatable eitherways, not a good question indeed, so let’s move on with option E. Crap Question, move on… - Dinesh S