Answered: Accounting Question

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Step 1

As per PAS 16, the asset should be initially recorded at cost.

The costs should include purchase cost and all costs directly attributable to asset and such costs incurred to bring such asset to such place and condition so that it is ready for its intended use.

The cost of a asset that can be capitalized includes its purchase price, delivery and handling costs, installation costs and costs associated with professional fees for architects etc., estimated costs of dismantling the asset and restoration of site.

Operating losses before commercial production is neither a directly attributable expense nor cost incurred to bring such asset to such place and condition. Hence these are not to be capitalized.