Which of the following items should not be capitalized relating to fixed assets?
Correct answer: A. Administration and general expenses
- A. Administration and general expenses
- B. Stand by equipment and servicing equipment
- C. Expenditure incurred on test runs and experimental production
- D. Interest payable on loans or deferred credits taken for the acquisition or construction of fixed assets before they are ready for use
Explanation
Administration and general expenses do not normally bring a fixed asset to its location or working condition, so they are charged as revenue expenses. Direct borrowing, testing and qualifying equipment costs may be capitalized when the relevant conditions are met.
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About Accounting Principles
Accounting principles explain the rules used to record, classify and report business transactions. Coverage includes the accounting equation, double-entry system, accrual and cash bases, matching and prudence concepts, consistency, going concern, business entity, and the difference between capital and revenue items.
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