Lili Corporation acquires new equipment at a cost of
Lili Corporation acquires new equipment at a cost of $ 100,000 plus 7% provincial sales tax and 5% GST. (GST is a recoverable tax.) The company paid $1,700 to transport the equipment to its plant. The site where the equipment was to be placed was not yet ready and Lili Corporation spent another $500 for one month's storage costs. 'When installed, $300 of labour and S200 of materials were used to adjust and calibrate the machine to the company's exact specifications. The units produced in the trial runs were subsequently sold to employees for $400. During the first two months of production, the equipment was used only at 50% of its capacity. Labour costs of $3,000 and material costs of $2,000 were incurred in this production, while the units sold generated $5,500 of sales. Lili paid an engineering consulting finn $11,000 for its services in recommending the specific equipment to purchase and for help during the calibration phase. Borrowing costs of $800 were incurred because of the one-month delay in installation.
Determine the capitalized cost of the equipment and explain why the remainder of the costs have not been capitalized.
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