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Hi, one of the rules for cessation of recognition for PPE says
not to include “costs incurred while an item capable of operating in the manner intended by management has yet to be brought into use or is operated at less than full capacity” in the carrying amount of PPE.
i am confused about the less than full capacity part.
my understanding is that, if the asset is operating as less than full capacity, the entity would then have to incur more cost to ensure it operates at full capacity. thus, i would include that cost in the carrying amount.
but the statement above says otherwise. Why?
Hi,
The idea is that the costs we have incurred so far were expected to get the asset working in the manner intended. If it isn’t working as such then that is an error in the way we have designed it and so any extra costs to get it to full capacity are ones that weren’t planned for and cannot be capitalised.
Thanks
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