I n t e r a c t I v e t e X t foundations in Accountancy/ acca financial accounting (ffa/FA) bpp learning Media is an acca approved Content Provider

measured at cost. 

 EXAM FOCUS POINT 

Exam questions on the distinction between capital and revenue expenditure are highly likely. 

BPP Tutor Toolkit Copy

---

CHAPTER 8  

//

  TANGIBLE NON-CURRENT ASSETS 

 

139 

 

3.4 Components of cost 

IAS 16 lists the components that make up the cost of an item of property, plant and equipment as 

follows. 

 

Purchase price, including any import duties paid, but excluding any trade discount and sales tax 

paid  

 

Initial estimate of the costs of dismantling and removing the item and restoring the site on 

which it is located 

 

Directly attributable costs of bringing the asset to working condition for its intended use. 

 

(IAS 16, para. 16) 

Examples of directly attributable costs are: 

– 

the cost of site preparation, eg levelling the floor of the factory so the machine can be 

installed; 

– 

initial delivery and handling costs; 

– 

installation and assembly costs; 

– 

professional fees (lawyers, architects, engineers); 

– 

costs of testing whether the asset is working properly, after deducting the net proceeds   

from selling samples produced when testing equipment; and 

– 

staff costs arising directly from the construction or acquisition of the asset. 

 

(IAS 16, para. 17)  

 

The following costs will not be part of the cost of property, plant or equipment unless they can be 

attributed directly to the asset's acquisition, or bringing it into its working condition. 

 

Expenses of operations that are incidental to the construction or development of the item 

 

Administration and other general overhead costs 

 

Start-up and similar pre-production costs 

 

Initial operating losses before the asset reaches planned performances 

 

Staff training costs 

 

Maintenance contracts purchased with the asset 

All of these will be recognised as an expense rather than as part of the cost of the asset. 

 EXAM FOCUS POINT 

Only staff costs arising directly from the construction or acquisition of the asset can be capitalised as 

part of the cost of the asset.  

The costs of training staff to use a new asset cannot be capitalised because it is not probable that 

economic benefits will be generated from training the staff, as we can't guarantee that those staff will 

stay and use the asset. The costs of training staff should be expensed. Watch out for this in your exam! 

 IMPORTANT 

From your studies of double entry, you should remember that the entries to record an acquisition of a 

non-current asset are: 

DEBIT Non-current 

asset 

– 

cost 

      $X 

CREDIT Cash (or payable, if a credit transaction)

$X

BPP Tutor Toolkit Copy

---