ACCA Applied Knowledge · Financial Accounting · Tangible non-current assets
Which of the following costs incurred by Harlow Co on a newly purchased machine should be capitalised as part of the cost of the machine under IAS 16?
Installation and testing costs should be capitalised, because they are directly attributable to bringing the machine to the location and condition needed for use. Training, general administration overheads and routine servicing are not part of cost under IAS 16 and are charged to profit or loss.
- ATraining of staff to operate the machine
- BCosts of installation and testing to bring the machine to working conditionCorrect
- CRoutine annual servicing after the machine enters use
- DAdministration overheads allocated to the purchasing department
Explanation
IAS 16 cost includes purchase price plus directly attributable costs of bringing the asset to the location and condition for use, such as installation and testing. Staff training, general administration overheads and routine servicing are expensed. Servicing is a repair and maintenance cost, so it is revenue expenditure.
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