CFA Level I · CFA Level I Exam · Analysis of Long-Term Assets
Under IFRS, which of the following costs incurred by a manufacturer on a newly purchased machine is most likely capitalized as part of the machine's cost?
Installation and testing costs are most likely capitalized because they are directly attributable to bringing the machine to the location and condition needed for intended operation. Staff training and initial operating losses are not part of that cost and are expensed as incurred under IFRS.
- ATraining of staff to operate the machine
- BInstallation and testing costs to bring it to working conditionCorrect
- CInitial operating losses incurred while demand builds
Explanation
Costs directly attributable to bringing an asset to the location and condition necessary for it to operate as intended, such as installation and testing, are capitalized. Staff training and initial operating losses are expensed as incurred.
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