They must be asking for the depreciable base (the capitalized cost, or installed cost) of the new machine. The answer is simply the purchase price (100,000) plus sales tax (2,300) and installation cost (3,800). The gain on the sale of the old machine is not capitalized as part of the purchase for the new machine, but rather reported separately on the income statement.
If the problem was asking for the tax effects of the new investment, it would take the net effect of the depreciation tax shield between the old machine and the new machine. In this case it makes no mention about tax effects.
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Brendan
United States
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Original Message:
Sent: 09-15-2022 04:59 AM
From: Aswin Raj Rajan
Subject: INSTALLED COST OF NEW MECHINE
Why option A is the answer and why the didn't take the sale of the old mechine
MKF Corporation purchased new machinery for a list price of $100,000. The company paid sales tax of $2,300 and delivery and installation charges of $3,800 to get the new machine up and running. MKF sold its old machine, which had a book value of $1,000 for $3,000 cash. MKF is subject to a 25% tax rate. Calculate the installed cost of the new machine. | $106,100 |
| $102,300 |
| $103,800 |
| $103,100 |
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Aswin Raj Rajan
None
ALAYAMON PO, KOLLAM
India
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