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Which TWO of the following items should be capitalised within the initial carrying amount of an item of plant?
A. Cost of transporting the plant to the factory
B. Cost of installing a new power supply required to operate the plant
C. A deduction to reflect the estimated realisable value
D. Cost of a three?year maintenance agreement
E. Cost of a three?week training course for staff to operate the plantAns: A, B
Could you explain more the following sentences in the answer:
“The maintenance and training costs should be expensed as incurred.”
and,
“The residual value should be taken into account for the purposes of calculating depreciation, but not for the amount to be capitalised.”
The first sentence is saying that the maintenance and training costs should be charged as an expense in the SOPL (and therefore should not be capitalised as part of the cost of the non-current asset).
The second statement is saying that the amount capitalised on the SOFP is the initial cost of the non-current asset. The only relevance of any residual value (i.e. final disposal value) is for calculating the depreciation expense charged in the SOPL, but does not affect the amount capitalised in the SOFP.
Have you watched my free lectures on non-current assets and depreciation, because I do explain both of these in the lectures?
The lectures are a complete free course for Paper FA and cover everything needed to be able to pass the exam well.
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