Company ABC purchases equipment from the supplier of 119,000 lei (VAT 19% included). A transportation invoice of 10,000 lei plus 19% VAT is paid to TRANS SRL to deliver the equipment to the ABC location; an amount of 10,000 lei is due for installation procedures and 5000 lei is calculated to be

Question

Company ABC purchases equipment from the supplier of 119,000 lei (VAT 19% included). A transportation invoice of 10,000 lei plus 19% VAT is paid to TRANS SRL to deliver the equipment to the ABC location; an amount of 10,000 lei is due for installation procedures and 5000 lei is calculated to be future possible losses in use.

a) What is the acquisition cost of the equipment for the initial recognition?

b) What are the effects of these transactions in the financial statements?

a) What is the acquisition cost of the equipment for the initial recognition?

b) What are the effects of these transactions in the financial statements?

Accepted Answer

a) What is the acquisition cost of the equipment?
While answering this question, it is imperative to be aware of the stipulations IAS 16 imposes when measuring costs: the asset’s cost should include all costs directly attributable to the asset, in order to be at the necessary location and in its condition of use. There is a number of costs that should never be capitalised, for e.g. administration and general overheads, repairs, idle time, costs incurred after the asset is ready for use, initial operating losses or future losses in use, advertising and promotional costs, training costs, relocations costs etc. (IAS 16, par. 16–17).
Computation of the acquisition cost of the equipment:

Net acquisition invoice amount………………………………100,000 lei (without [latex]VAT^{8}[/latex]).
Net transportation cost from invoice …………………………10,000 lei (without VAT)
Checking procedures………………………………………10,000 lei
Total initial cost (depreciable cost)…………………120,000 lei.[latex]^{9}[/latex]

b) What are the effects of these transactions in the financial
statements?

b.1. Acquisition invoice

Step 1: How is the accounting equilibrium affected by this transaction?

ASSETS = EQUITY + LIABILITIES
+100, 000 lei = 0 + 119, 000 lei +19, 000 lei

Step 2: Journal entry

119,000 lei % = Accounts payable for non-current assets 119,000 lei

100,000 lei Equipment
19,000 lei VAT deductible

Step 3: Impact in the financial statements

The impact on the Balance Sheet of the company is the following:
assets increase by 100,000 lei, VAT deductible increase by 19,000 lei and liabilities increase by 119,000 lei.
b.2. Transportation invoice
The accounting analysis is based on the same procedure, however, for simplification, only the journal entry is provided
Step 2: Journal entry

19,000 lei % = Other payable for non-current assets 19,000 lei

10,000 lei Equipment
9000 lei VAT deductible

b.3. Installation procedures

10,000 lei Equipment = Other payable for non-current assets 10,000 lei

Question 6.5: Company ABC purchases equipment from the supplier of 119,000...

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