What costs are capitalized for the acquisition of equipment?

The proper treatment for capitalizing costs associated with the acquisition of equipment includes several components that are necessary to prepare the asset for its intended use. The correct answer encompasses the purchase price, freight-in, installation costs, and any applicable taxes.

When a company acquires equipment, the total cost that can be capitalized includes not just the purchase price of the equipment itself, but also additional costs that are incurred to transport the equipment to its location and to make it operational. Freight-in refers to the shipping costs to bring the equipment to the business, which are directly associated with the acquisition and hence must be included in the capitalized cost. Installation costs are also necessary, as they are incurred to set up the equipment in a manner that allows it to function correctly. Additionally, applicable sales tax or import tariffs that must be paid at the time of acquisition are also capitalizable costs.

In combining these elements—purchase price, freight-in, installation, and taxes—the total capitalized cost reflects all expenditures necessary to bring the asset to a state of readiness for use, thus aligning with the accounting principles governing capital asset recognition. This comprehensive approach ensures that the recorded value of the equipment accurately reflects what it cost to acquire and prepare it for operational utilization.