The Ealing Co. Ltd installs a new machine in its factory. The following are some of the
Question:
The Ealing Co. Ltd installs a new machine in its factory. The following are some of the costs incurr~d by the firm during the first year of operation of the machine; should any of these be treated as part of the machine's original cost?
(a) The cash price was £ 100,000.
(b) An old machine was removed to make way for the new one and this removal cost
£2000.
(c) £55 was paid for delivery of the new machine.
(d) The firm's own labour force was used to install the machine, the relevant wages were £4000.
(e) A new air-conditioning unit (cost £1500) was installed because of extra heat generated by the new machine. It was estimated that the existing air-conditioning unit would have had to be renewed next year even if the machine had not been installed.
(j) The Managing Director, who is paid £8 per hour, spent two hours examining the new machine.
(g) The Chief Accountant is paid £5 per hour and he spent one hour processing the new machine's invoice as it contained some mistakes.
(h) Repair costs of £200 were incurred in the first year.
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