ACCA Applied Knowledge · Financial Accounting · Depreciation
Which of the following items should be included in the cost of a non-current asset under IAS 16?
Initial delivery and handling costs are capitalised because they are directly attributable to bringing the asset to its location and condition for use. Advertising, general administration overheads and initial operating losses are not part of cost under IAS 16 and are expensed.
- ACosts of opening a new facility, including advertising
- BInitial delivery and handling costsCorrect
- CGeneral administration overheads allocated to the project
- DLosses incurred while demand for the asset's output builds up
Explanation
IAS 16 allows directly attributable costs such as delivery, handling, installation and professional fees to be capitalised. Advertising, general administration overheads and initial operating losses are specifically excluded and expensed.
Did you get it right without looking?
One question tells you little. A timed set on Depreciation shows your real accuracy, how long you take and where you lose marks.
More Depreciation questions
- Which journal correctly records the annual depreciation charge for a non-current asset?
- Delta Co bought a building on 1 January 20X1 for $500,000 with a 50-year life and nil residual value, using the straight-line method. On 1 J…
- Which of the following is a required treatment under IAS 16 when the estimated useful life of an existing asset is revised?
- Zeta Co buys a machine on 1 April 20X4 for $120,000, with an expected useful life of 5 years and a residual value of $12,000. Zeta Co uses t…
- Zeta Co buys equipment on 1 April 20X1 for $90,000 and depreciates it at 25% per year reducing balance, with a full year's charge in the yea…
- Orion Co bought equipment on 1 January 20X1 for $60,000. It depreciates equipment at 25% per year on the reducing balance method, with a yea…