Question $2$

Daniel Manufacturing Limited $($DML$)$ purchased a large lathe. The invoice cost of the lathe was $$6,200,000$ but DML was able to get the price reduced to $$5,800,000.$ The seller provided terms whereby if the entire amount was paid within $30$ days a further discount of $3\%$ was available. DML paid on the $25$th day. Transportation of the machine cost DML $$70,000.$ Insurance while in transit was $$30,000.$ To encourage DML to purchase another machine, the manufacturer gave DML a $$50,000$ discount voucher on its next purchase of a similar machine. Workers were paid $$45,000$ to install the machine. Start$-$up and testing costs were $$45,000.$ Unfortunately, during the installation, one of the workers accidentally damaged the machine, and it cost $$15,000$ to repair the damage. Non$-$refundable sales taxes paid were $$700,000,$ however, later a sales tax rebate of $$80,000$ was received relating to this transaction. During installation, part of the plant had to be shut down; lost profit from the shutdown was $$100,000\mathrm{.}1$

Required:

For each expenditure, identify whether it should be included in the cost of the lathe or expensed. Briefly justify each of your responses.

Answer:

$\backslash$table$[[$Item$,\backslash$table$[[$Include in$],[$cost of lathe$]],$Expense,$],[$Lathe$,,,],[3\%$ discount,,,$],[$Freight in$,,,],[$Insurance$,,,],[$Voucher$,,,],[$Installation$,,,],[$Testing$,,,],[$Damages$,,,],[$Sales Tax,,,$],[$Shutdown$,,,],[$Total cost$,,,]]$S