Part A (10 marks)

An entity in the construction industry recently purchased a brick making machine from one of its suppliers. The machine became available for use on 01 September 2019. The financial year end of the company is 31 December.

The following costs were incurred relating to the purchase of the machine:

	Rand
Purchase Price	975 000
Delivery costs	12 000
Administration costs	110 000
Import duties (non - refundable)	60 000
Staff party to celebrate the acquisition of the new machine	10 000
Testing to ensure that machine is fully operational	32 000
Installation costs	65 000

The machine has a useful life of 10 years and a residual value of R64 000. The machine is to be depreciated using the diminishing balance method at a rate of 10% per annum.

You are required to:

1. Calculate the cost to be capitalised to the machinery account. Explain in one sentence why you have capitalised these costs. (4 marks)