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Capitalisation

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FA – FIA FFA › Capitalisation

  • This topic has 1 reply, 2 voices, and was last updated 1 year ago by John Moffat.
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  • Author
    Posts
  • July 10, 2021 at 10:53 am #627353
    nguyentran78921
    Member
    • Topics: 14
    • Replies: 1
    • ☆

    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  plant 

    Ans: 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.”

    July 10, 2021 at 5:46 pm #627378
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 51551
    • ☆☆☆☆☆

    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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