CFA Level I · CFA Level I Exam · Analysis of Long-Term Assets
Under IFRS, a manufacturer pays for staff training and incurs start-up losses while a newly built plant ramps up to normal operating capacity. These costs are most likely:
These costs are expensed as incurred. Training and start-up operating losses are not directly attributable to bringing the plant to the condition needed for its intended use, so IFRS excludes them from the asset's cost and recognizes them in profit or loss immediately.
- Aexpensed as incurredCorrect
- Badded to the carrying amount of the plant
- Ccapitalized and amortized over the plant's useful life
Explanation
Costs of staff training and initial operating losses are not directly attributable to bringing the asset to the location and condition needed for use. IFRS therefore requires them to be expensed. Capitalizing them would overstate assets and current profit.
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