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sir what is the rational for not capitalising abnormal costs? I know it perhaps relates to FR but still if you could clear it, it will be great!
thanks in advance!
If it’s an expense, and you capitalise it (i.e. add it to assets), we will all end up in prison – I think that may be what happened to Worldcom………….but don’t sue me.
sir but we do capitalise any normal material or labour costs, which are expenses themselves, if they have been incurred in the construction of an asset. then why this animosity towards abnormal costs is my question?
Assets must not be overstated – that’s the starting point.
When I was an auditor I once damaged some client stock in an accident with a fork lift truck, so they had to spend money repairing the stock. You don’t want all those extra costs being added to assets.
And, of course, it is required by the standard!