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  • 1.  INSTALLED COST OF NEW MECHINE

    Posted 09-15-2022 05:00 AM
    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.


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    Aswin Raj Rajan
    None
    ALAYAMON PO, KOLLAM
    India
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  • 2.  RE: INSTALLED COST OF NEW MECHINE

    Posted 09-16-2022 01:33 AM
    Hi,

    The question is asking about the "installed cost of New machine" but if you also consider the sale of old machine then would be "Net cash outflow for New machine".

    So as per requirement of the question only amount incurred upto the point of installation would be considered. Which is (100000+2300+3800= 106100).

    Best regards
    Tushar





  • 3.  RE: INSTALLED COST OF NEW MECHINE

    Posted 09-16-2022 07:28 PM
    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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  • 4.  RE: INSTALLED COST OF NEW MECHINE

    Posted 09-17-2022 02:06 AM
    Excellent Answer

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    Muhammad Luqman Rafiq
    Other
    Karachi
    Pakistan
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  • 5.  RE: INSTALLED COST OF NEW MECHINE

    Posted 09-17-2022 02:08 AM
    Because question is asking about installation cost, not initial cash outflow!

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    Shefali Jindal
    Analyst
    Jaipur
    India
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