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f6ali.
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bananabuddy
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Cessation of Cost Recognition
[IAS 16.20]
It should be noted that costs are no longer capitalized once the item is in the
location and condition necessary for it to be capable of operating in the manner intended by management.the above sentence confuses me a little.
if there is a further increase in economic benefit and the asset is not operating at its full capacity (but already in manner intended by mgnt), will the cost be capitalized (assuming it satisfies the recog criteria)
f6ali
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In future if you want to ask the tutor directly, kindly start a thread in Ask the Tutor Forum. This forum is for students to help each other.
It doesn’t matter whether or not an asset is intended to, or being operated at its full capacity by management. Technicalities are the criteria for deciding whether or not to capitalise costs for depreciation.
An expenditure is capitalised into the cost of asset if it enhances its operations more than the original full capacity (at the initial installation). This is because the asset does not have the original specifications and can be considered as a slightly newer version because the original one wasn’t capable of doing what it can now.
This is in contrast to repairs and maintenance, where the expenditure is incurred to ‘maintain’ the asset at its original full capacity.
Hope it helps.
bananabuddy
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got it, thank you!
f6ali
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You are welcome.
bananabuddy
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