Accounting Online Program Certification Practice Test

What was the total cost that contributed to the £43,000 plant purchase at Spam plc?

1. £44,400

2. £43,000

3. £46,000

4. £45,000

The correct answer is: £44,400

In the context of accounting for plant purchases, the total cost typically includes not just the purchase price of the asset but also any additional expenses necessary to prepare the asset for its intended use. This can include costs such as installation, transportation, and any other ancillary expenses that are directly attributable to bringing the asset to the location and condition for its operational use. A total cost of £44,400 suggests that there were additional expenditures beyond the sticker price of the plant. If the plant was purchased for £43,000, it implies that costs associated with its acquisition—such as installation or delivery—were incurred, bringing the total expenses up to £44,400. This emphasizes the importance of understanding that the purchase price is often not the only cost incurred and that a comprehensive assessment of the total expenditure is necessary for accurate financial reporting and asset valuation. This consideration highlights the significance of recognizing all related costs in the accounting process to represent the total investment in the asset correctly on the balance sheet.