ACCA Applied Knowledge · Financial Accounting · Tangible non-current assets
Harbour Ltd bought a machine for $80,000 plus $4,000 delivery, $2,500 installation and testing, and $1,500 staff training on how to operate it. It also paid $3,000 for a maintenance contract for the first year. What amount should be capitalised as the cost of the machine under IAS 16?
The machine should be capitalised at $86,500. This is the purchase price plus delivery and installation and testing costs, which are directly attributable to bringing the asset to working condition. Staff training and the maintenance contract are revenue expenses and are charged to profit or loss.
- A$86,500Correct
- B$88,000
- C$91,000
- D$80,000
Explanation
Cost includes purchase price, delivery and installation/testing: 80,000 + 4,000 + 2,500 = $86,500. Staff training and maintenance contracts are not directly attributable costs of bringing the asset to working condition and are expensed. $88,000 wrongly includes training.
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