A machine's invoice price is $40,000. Various other costs relating to the acquisition and installation of the machine-including transportation, electrical wiring, a special base, and so on- amount to $7,500. The machine has an estimated life of 10 years, with no residual value at the end of that period.
The owner-manager of the company that you work for as an accountant suggests that the incidental costs of $7,500 be charged to expense immediately for the following reasons:
• If the machine is ever sold, these costs cannot be recovered in the sale price.
• The inclusion of the $7,500 in the machinery account on the books will not necessarily result in a closer approximation of this asset's market price over the years, because demand and supply levels could change.
• Charging the $7,500 to expense immediately will reduce income taxes.
Instructions
Prepare a memo to the owner-manager that addresses each of the issues assuming that the company follows ASPE.