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BPP 24 Foster Co has built a new factory incurring the following costs:
$’000
Land 1200
Materials 2400
Labour 3000
Architect’s fees 25
Surveyor’s fees 15
Site overheads 300
Apportioned administrative overheads 150
Testing of fire alarms 10
Business rates for first year 12What will be the total amount capitalised in respect of the factory?
? $6,640,000
? $6,950,000
? $7,112,000
? $7,100,000ANS
B
Land 1200
Materials 2400
Labour 3000
Architect’s fees 25
Surveyor’s fees 15
Site overheads 300
Testing of fire alarms 10
6950
Good day sir,I don’t understand why the testing of fire alarms was included in the capitalised cost.I’ll appreciate if you can explain why.ThanksHi,
We capitalise costs that are directly attributable to getting the asset in a working condition to operate as intended. Without the testing of the fire alarms then we wouldn’t know if they work and if they don’t work then we wouldn’t be able to operate the building as intended, hence it is capitalised.
Thanks
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