Capitalizing acquisition costs for machinery

Steps:

• Record the purchase price as the base cost: $10,000
• Add delivery charge to include transportation to site: +$1,200
• Add insurance as protection during transit: +$800
• Total cost debited to machinery account: $12,000

Why C is correct:

• Under accounting standards (e.g., IAS 16), the initial cost of property, plant, and equipment includes purchase price plus directly attributable costs like delivery and transit insurance to bring the asset to location and condition for use.

Why the others are wrong:

• A: Includes only purchase and installation, ignoring delivery and insurance.
• B: Includes only purchase and delivery, excluding insurance.
• D: Overstates by $500 with no basis in given payments.

Final answer: C