Practice Question
When purchasing equipment, which of the following costs should be included in the asset's recorded cost?
- Only the purchase price of the equipment
- Purchase price, installation costs, and transportation
- Financing charges and interest over the asset's life
- Future maintenance and repair expenses
Answer +
Correct Answer: B
Explanation +
The recorded cost of an asset includes all expenditures necessary to acquire it and prepare it for its intended use. This includes the purchase price as well as installation, shipping, and other directly related costs.
These costs are capitalized and added to the asset's balance sheet value. Costs like interest, future maintenance, or unrelated fees are expensed separately and are not included in the initial asset cost.