Recording Transactions: Tangible Assets — ACCA Practice Question 25

How to approach this question

Apply IAS 16 rules for initial measurement. Costs directly attributable to bringing the asset to the location and condition necessary for it to operate are capitalized. Operating losses are explicitly excluded.

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C.Initial operating losses incurred before the machine achieves planned performance.✓ Correct

Under IAS 16 Property, Plant and Equipment, the cost of an item includes its purchase price and any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating. Initial operating losses, costs of training staff, and general overheads are not directly attributable to the asset's acquisition/installation and must be expensed.

Common mistakes

Thinking that all costs incurred before the machine is fully profitable can be capitalized.

Section A

Which of the following would NOT be included in the cost of a newly acquired piece of manufacturing machinery?

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Full Answer

Common mistakes

Practice the full ACCA FA — Financial Accounting Practice Exam 6

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Section A Which of the following would NOT be included in the cost of a newly acquired piece of manufacturing machinery?

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA FA — Financial Accounting Practice Exam 6

More questions from this exam

Section A

Which of the following would NOT be included in the cost of a newly acquired piece of manufacturing machinery?