A manufacturer of plastic bottles for the medical trade purchases a new compression blow moulder for its bottle production plant. How will the cost to the company of this piece of equipment be recorded?

Question

Quizplus · Accepted Answer

The cost of the new compression blow moulder will be recorded as a capital expenditure on the statement of cash flows and will be depreciated over time on the income statement. This is because the purchase of the equipment is a capital expenditure and not a regular operating expense. Depreciation is used to spread out the cost of the equipment over its useful life, which allows the company to record the cost of the equipment over time instead of all at once. This choice is the most accurate way to reflect the financial impact of the equipment purchase on the company's financial statements.

A Manufacturer of Plastic Bottles for the Medical Trade Purchases