COST OF EQUIPMENT

Procurement Cost

Procurement cost includes (i) the cost price of the equipment, (ii) interest on money invested on the purchase, (iii) taxes paid and (iv) insurance cost.

Evidently the owner of the equipment pays cash for the procurement of the equipment. It is to be noted that if the same amount is invested in some other scheme what would be the turnover. One should get a higher amount annually by investing in the equipment. Each year the equipment earns for the owner and in the process its value gets depreciated. Thus the investment in the equipment is therefore reduced by the amount of depreciation. A realistic rate of interest would be the one based on the average value of the equipment during its useful life. The average value of the equipment has to be determined.

On the depreciated value of the equipment the insurance and taxes are paid. The expenses also should be worked out on the average value of equipment. These aspects are to be considered before investing on the procurement of equipment.