A company buys a production line that requires installation and testing before it can operate. Which treatment is normally appropriate for directly attributable installation and testing costs?
Correct answer: B. Include them in the initial cost of the production line
- A. Charge them immediately as administrative expense
- B. Include them in the initial cost of the production line
- C. Deduct them from the asset's residual value
- D. Record them as revenue from the production line
Explanation
Directly attributable costs necessary to bring an asset to the location and condition required for operation form part of its initial cost. General administrative costs and abnormal waste are not normally included in that cost.
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About Depreciation and Non-Current Assets
Non-current assets are long-term resources recorded at cost and reduced by accumulated depreciation to show their carrying amount. Coverage includes straight-line and reducing-balance methods, residual value, useful life, depreciation adjustments, capital and revenue expenditure, and the profit or loss arising when an asset is disposed of.
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