ExpertEasy2 marksMultiple Choice
ACCA · Question 21 · Financial Reporting
Section B - Case 2: TidalWave Energy
TidalWave Energy PLC is constructing a tidal lagoon power plant. Construction began on 1 January 20X4. Costs incurred during 20X4 included:
- Materials and labor: $12,000,000
- Site preparation: $2,000,000
- General administrative overheads: $1,500,000
- Initial operating losses before commercial production: $800,000
What is the total amount that should be capitalized as Property, Plant and Equipment for the year ended 31 December 20X4?
Section B - Case 2: TidalWave Energy
TidalWave Energy PLC is constructing a tidal lagoon power plant. Construction began on 1 January 20X4. Costs incurred during 20X4 included:
- Materials and labor: $12,000,000
- Site preparation: $2,000,000
- General administrative overheads: $1,500,000
- Initial operating losses before commercial production: $800,000
What is the total amount that should be capitalized as Property, Plant and Equipment for the year ended 31 December 20X4?
Answer options:
A.
$14,000,000
B.
$15,500,000
C.
$16,300,000
D.
$12,000,000
How to approach this question
Identify directly attributable costs required to bring the asset to the location and condition necessary for it to be capable of operating. Exclude general overheads and initial operating losses.
Full Answer
A.$14,000,000✓ Correct
Under IAS 16, only directly attributable costs can be capitalized.
Materials and labor ($12,000,000) and Site preparation ($2,000,000) are directly attributable.
General administrative overheads ($1,500,000) and initial operating losses ($800,000) must be expensed to profit or loss.
Total capitalized = $14,000,000.
Common mistakes
Capitalizing general administrative overheads.
Practice the full ACCA FR — Financial Reporting Practice Exam 6
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