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Hello Mike
According to IAS 16:
Initial measurement
An item of property, plant and equipment should initially be recorded at cost. [IAS 16.15] Cost includes all costs necessary to bring the asset to working condition for its intended use. This would include not only its original purchase price but also costs of site preparation, delivery and handling, installation, related professional fees for architects and engineers, and the estimated cost of dismantling and removing the asset and restoring the site (see IAS 37 Provisions, Contingent Liabilities and Contingent Assets). [IAS 16.16-17]
My question is, if a company has to wire the money to purchase the asset, should the transaction fee for that be included in the cost of the asset? I think it should since if it wasn’t paid the transaction would not take place.
Are you kidding me? What is the cost of the asset? And how much does the bank charge for wiring the money? Are we talking material amounts here?
no mike i am not kidding you. obviously i know the amount is not material compared to the cost of the asset. i am asking because of the principle of the situation and in my experience i have seen it been allocated to both the expense and asset so i was wondering which is correct……when i become an accountant , i would like to know that i’m doing the correct thing whether the amount is material or not.
If it’s immaterial, and it almost certainly will be, the “correct” thing to do is whatever you want – because it’s immaterial!
Many companies have a policy not to capitalise capital expenditure below a certain amount – it could be 100, 1,000, 10,000 or whatever.
If you are currently employed, it is almost certainly the case that your employer does not capitalise, for example, the cost of a replacement calculator nor the cost of batteries that, when fitted, will extend the useful life of the calculator.
The whole concept of materiality and “it doesn’t matter what you do because it’s immaterial” is there because …………..well, because ……… it’s immaterial
Where your bank charges you for each payment that you make to your suppliers, are you intending to add those bank charges to the cost of sales as being a necessary expense incurred in bringing those purchases to their present location and condition?
Nari, it wouldn’t matter if you allocated the bank’s wiring charges to the Electricity Account or Advertising Account or Snow White and the Seven Vertically Challenged People Account. You can debit the amount anywhere you want and that will be ok.
But, if you wish to be strictly correct, I suggest a debit entry in the Finance Charges Account would be most appropriate
Ok?
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