ICAEW AF · Chapter 11 · Question 1 of 13
A company buys a machine with a list price of £64,000, on which it receives a trade discount of 5%. It also pays: delivery £1,200; installation £2,400; staff training on the machine £1,500; and a maintenance contract for the first year £900. Under IAS 16 Property, Plant and Equipment, what is the cost of the machine?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: D) £64,400
Explanation
Cost includes the purchase price after trade discounts and costs directly attributable to bringing the asset to the location and condition needed for it to operate. Purchase price = £64,000 x 95% = £60,800. Cost = £60,800 + delivery £1,200 + installation £2,400 = £64,400. Staff training and maintenance are expensed as incurred.
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