Directly attributable costs

Learning objectives

• Identify directly attributable costs.L1
• Distinguish costs that may be capitalised from costs to be recognised as an expense.L2
• Justify the treatment of a given expenditure.L2, L3
• Determine the initial cost of an item of property, plant and equipment from a set of expenditures.L2, L3

Normative references

• IAS 16 §16Elements of cost: purchase price (import duties and non-refundable purchase taxes, after trade discounts and rebates); costs directly attributable to bringing the asset to the location and condition needed for it to operate as management intends; the initial estimate of the costs of dismantling and removing the item and restoring the site, when the obligation arises on acquiring the item or from using it during a period for purposes other than producing inventories.
• IAS 16 §17Examples of directly attributable costs: employee benefits arising from the construction or acquisition, site preparation, initial delivery and handling, installation and assembly, testing whether the asset is functioning properly (assessing the technical and physical performance of the asset), professional fees.

Original summaries of the paragraphs (reference register), never a quotation of the standard.

3 questions

• An entity acquires a packaging line. Which expenditures are directly attributable costs to be included in the cost of the asset? (Select all that apply.)L1
• An entity acquires a press for a net purchase price of {purchase_price}. It also incurs: delivery to the site {delivery}, installation and assembly {installation}, fees of the engineer who commissioned the press {engineer_fees}, operator training {training}, advertising to launch the new products {advertising}, and an allocation of administrative overheads {admin_overheads}. What is the initial cost of the press?L2
• While installing a new bottling line, an entity incurs 30,000 of pay for the engineers who assemble and set up the line, and 8,000 of salaries for the head-office accounting staff who processed the project invoices. Justify the treatment of each of these two amounts.L3