1a. The following expenditures were incurred in connection with a new machine ac

Question

1a. The following expenditures were incurred in connection with a new machine acquired by a metals manufacturing company. Identify which of these costs should be included in the cost of the machine (yes or no):

_____   Freight charges

_____   Sales tax on the machine

_____   Payment to a passing motorist whose car was damaged by the equipment In unloading the machine

_____   Wages of the employees for the time spent in installing and testing the Machine before it was placed in service

_____    Wages of employees assigned to lubricate and make minor adjustments to the machine one year after it was placed in service

1b.: Explain the meaning of impairment of an asset. Provide two examples in your explanation. What accounting action should occur when an asset has become substantially impaired?  

Explanation / Answer

Question - 1 b

Impairment of an asset is a situation where we find the the carring amount of the asset in balance sheet is significantly over valued when compared with the present value of the future benifits of the asset.

Examples, in respect of a fixed assets shall include ....... damage of the asset, absolecence due to out dated technology.

Most frequent examples includes intangibles like goodwill and patents, that become worth less compared to their carried values in balance sheet.

Accounting action

Such impaired values should be eliminated from assets, by debiting impairment loss and crediting the concered asset.

Yes Freight charges Yes Sales tax on the machine No Payment to a passing motorist Yes wages of the employees fo the time No wages of employees assegned to lub

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