Non Current Asset

[Poonam]

Gareth, a sales tax registered trader purchased a computer for use in his business. The invoice for the computer showed following costs related to purchase:



How much should Gareth capitalise as a non current asset in relation to the purchase?

(A) $1,222
(B) $1,040
(C) $890
(D) $1,015

[Jeremy007]

The answer is D?
because maintainence and sale tax are not included in the criteria for capitalising non-current asset.

[iftikharacca]

the answer d is correct bz sales tax+ 1year maintaince expenses are not capital exp.

[Dagabie]

The answer is (D) $1,015.

The reasons are that:

1.Gareth is a sales tax registered trader who is entiled to net off tax on Input (purchases) against tax on Output (sales). The sales tax(the tax on purchases) therefore should not form part of the cost of the computer.

2.The one year maintenance cost is a revenue expense which does not qualify to be capitalised.

3.The computer will be used by Gareth in his business and economic benefits will flow to the business from the used of the computer (asset) for more than one accounting period, therefore the computer and the associated costs incurred in bringing it to its location and state ready for use by Gareth qualify to be capitalised as a non-current asset.