CFA Level I · CFA Level I Exam · Analysis of Long-Term Assets
Under IFRS, an entity incurs costs to train staff who will operate a newly installed production machine. The training costs are most likely:
The training costs are expensed as incurred. IFRS permits capitalization only of costs directly needed to bring the machine to working condition, such as purchase price and installation. Staff training is excluded from the asset cost, so it reduces profit in the period it is incurred.
- Aexpensed as incurredCorrect
- Badded to the cost of the machine
- Ccapitalized as a separate intangible asset
Explanation
IAS 16 allows only costs directly attributable to bringing the asset to the location and condition necessary for operation. Staff training costs are specifically excluded and are expensed as incurred. Adding them to the machine cost would overstate assets and current-period profit.
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