Rex\'s Reclaimers entered into a contract with Dan\'s Demolition to manage the p

Question

Rex's Reclaimers entered into a contract with Dan's Demolition to manage the processing of recycled materials on Dan's various demolition projects. Services for the 3-year contract include collecting, sorting, and transporting reclaimed materials to recycling centers or contractors who will reuse them. Rex's incurs selling commission costs of $2,200 to obtain the contract. Before performing the services, Rex's also designs and builds specialty receptacles and loading equipment that interfaces with Dan's demolition equipment at a cost of $29,700. These receptacles and equipment are retained by Rex's. Dan's promises to pay a fixed fee of $13,200 per year, payable every 6 months for the services under the contract. Rex's incurs the following costs: design services for the receptacles to interface with Dan's equipment $3,300, loading equipment controllers $6,600, and special testing and OSHA inspection fees $2,200 (some of Dan's projects are on government property). Determine the costs that should be capitalized as part of Rex's Reclaimers revenue arrangement with Dan's Demolition. Dan's also expects to incur general and administrative costs related to this contract, as well as costs of wasted materials and labor that likely cannot be factored into the contract price. Can these costs be capitalized? Click if you would like to Show Work for this question: Open Show Work

Explanation / Answer

a) Design and building cost of special equipment:    $ 29,700/-

b)Design service of special equipment $ 3,300/-

c)Loading equipment controller $ 6,600/-

d) Special testing and OSHA Inspectio $ 2,200/-

The cost associated with fixed assets only can be capitalised. All expense for bringing the assets in present condition and locationshould be treated as capirtal expenses.

All other expenses such as administrative, selling, labour etc are cost incured in connection with principle revenue generating activity. All such cost are revenue nature hence cannot be capitalised

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