Answer with Explanation:
According to International Accounting Standard IAS 16 Property, Plant and Equipment, the cost of the asset acquired must include all the cost necessary to make it ready for its intended use.
This means that the expenditure that is the legal cost or must be very important for making it ready for use must form part of the asset.
The double entry of such transaction is as under:
Dr Non Current Asset XX
Cr Cash or Cash Equivalent Paid or Payables XX
From the above criteria, we can say that following accounts must be debited:
1. Paid $7,000 of accrued taxes at the time the plant site was acquired.
Dr Land-Plant Site $7,000
Cr Accrued Taxes $7,000
2. Paid $200 insurance to cover a possible accident loss on new factory machinery while the machinery was in transit.
Dr Factory Machine $200
Cr Cash $200
3. Paid $850 sales taxes on a new delivery truck.
Dr Delievery Truck $850
Cr Sales Tax - Not refundable $850
If the sales tax is refundable while we file tax returns then it must not be included in cost as it is paid for completing formalities of the vendor company.
4. Paid $21,000 for parking lots and driveways on the new plant site.
Dr Land-Plant Site $21,000
Cr Cash $21,000
5. Paid $250 to have the company name and slogan painted on the new delivery truck. choose an account title
Dr Delievery Truck $250
Cr Cash $250
6. Paid $8,000 for installation of new factory machinery.
Dr Factory Machinery $8,000
Cr Cash $8,000
7. Paid $900 for a 1-year accident insurance policy on the new delivery truck.
Dr Prepaid Insurance $900
Cr Cash $900
8. Paid $75 motor vehicle license fee on the new truck.
Dr Lisence Expense $75
Cr Cash $75
It is paid on behalf of an employee but it is 100% business oriented not employee oriented benefit. Hence is classified as a revenue expenditure.
