ExpertEasy2 marksMultiple Choice
ACCA · Question 25 · Recording Transactions: Tangible Assets
Section A
Which of the following would NOT be included in the cost of a newly acquired piece of manufacturing machinery?
Section A
Which of the following would NOT be included in the cost of a newly acquired piece of manufacturing machinery?
Answer options:
A.
Delivery and handling costs.
B.
Installation and assembly costs.
C.
Initial operating losses incurred before the machine achieves planned performance.
D.
Professional fees for engineers overseeing the installation.
How to approach this question
Apply IAS 16 rules for initial measurement. Costs directly attributable to bringing the asset to the location and condition necessary for it to operate are capitalized. Operating losses are explicitly excluded.
Full Answer
C.Initial operating losses incurred before the machine achieves planned performance.✓ Correct
Under IAS 16 Property, Plant and Equipment, the cost of an item includes its purchase price and any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating. Initial operating losses, costs of training staff, and general overheads are not directly attributable to the asset's acquisition/installation and must be expensed.
Common mistakes
Thinking that all costs incurred before the machine is fully profitable can be capitalized.
Practice the full ACCA FA — Financial Accounting Practice Exam 6
65 questions · hints · full answers · grading
More questions from this exam
Q01Section A
GlobalHealth Initiative, an international NGO, receives a restricted grant of $500,000...MediumQ02Section A
Quantum AI Ltd, a tech startup, has developed a proprietary algorithm. The directors w...MediumQ03Section A
HydroGrid PLC, a public utility company, receives a $24,000 payment on 1 October 20X5 ...MediumQ04Section A
AgriGrow Ltd operates a large commercial farm. At year-end, they have 10,000 tonnes of...MediumQ05Section A
SteelForge Heavy Industries purchased a blast furnace on 1 January 20X2 for $5,000,000...Hard