Costs excluded and cessation of capitalisation

Learning objectives

• Distinguish costs that may be included in the cost of the asset from costs to be recognised as an expense.L1, L2
• Calculate the cost excluding expenditure that may not be included and expenditure incurred after the asset is capable of operating in the manner intended.L2, L3
• Identify an error in the inclusion of a cost in an acquisition schedule.L2

Normative references

• IAS 38 §29Not part of the cost: introducing a new product or service (advertising and promotion), conducting business in a new location or with a new class of customer (staff training), administration and other general overhead costs.
• IAS 38 §30Recognition of costs ceases when the asset is in the condition necessary for it to be capable of operating in the manner intended; excluded: costs incurred while an asset capable of operating is not yet brought into use, initial operating losses.

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

14 questions

• A retailer acquires an online sales platform for {purchase_price}. It then incurs {configuration} of configuration and {testing} of tests of proper functioning before going live. It also spends {user_training} on training its teams and {launch_advertising} on advertising to announce the launch of the site. In the first month after going live, the site, with few visitors, makes an operating loss of {initial_operating_loss}. What is the cost of the intangible asset?L2
• The acquisition schedule for a business software package contains the following lines, all included in the cost of the asset. Which one is a capitalisation error?L2
• A testing laboratory, Biomeris, acquires a licence for sample-processing software. Which of the following items of expenditure is directly attributable to preparing the asset?L2
• The veterinary clinic network Vetalia acquires patient-records software for 120,000. Before going live, it incurs 9,000 of consultants' fees to adapt the interfaces, 3,000 of testing and 6,000 of salaries of its internal project team spent on configuration. The IT department also allocates 4,000 of general overheads to the project, and training the vets costs 5,000. What is the cost of the intangible asset?L3
• True or false? Advertising costs incurred to announce a new service, made possible by a licence that the entity has just acquired, are included in the cost of that licence.L1
• True or false? Acquired software is capable of operating as intended in March, but the entity waits until June to use it. The hosting costs paid from April to June during this wait are included in the cost of the software.L2
• A travel agency acquires an online booking engine. Which of the following items of expenditure must be expensed rather than included in cost?L1
• When does recognition of costs in the carrying amount of a separately acquired intangible asset cease?L2
• A chain of gyms, Fitora, acquires a class-booking app and extends it to a new city. Which of the following items of expenditure must be expensed?L2
• The haulier Navexa buys route-planning software for {purchase_price}. A consultant configures it for {configuration_fees} and the software is capable of operating as intended on 1 March 20X1. However, Navexa only brings it into use on 1 May 20X1 and pays {idle_hosting} of hosting for the period in between. Management control also allocates {allocated_overheads} of general overheads to the project. What is the cost of the intangible asset?L2
• The news website Quotidia acquires a licence for an editorial search engine for {licence_price}. Before the engine is operational, it bears {test_fees} of acceptance-testing fees and {internal_salaries} of salaries of its engineers in charge of installation. Once the engine is operational, the audience is slow to come and the business records {early_losses} of start-up losses; Quotidia also spends {new_office_training} on training the team of its new regional newsroom. Calculate the cost of the licence.L3
• Corvane's internal auditor's working paper on the acquisition of payroll software contains the following conclusions. Which one is wrong?L2
• Santeo acquired a teleconsultation platform, capable of operating as intended on 30 June 20X1 but launched to patients on 1 September 20X1. Its schedule of capitalised costs contains the following lines. Which one is an error?L2
• The ferry company Marivo acquires an online ticketing system for 300,000 and pays 20,000 for testing before it is capable of operating as intended, on 1 April 20X1. After that date, it incurs 15,000 of training for port agents, 30,000 for a launch campaign and 8,000 of fees to adjust screens while the system already operates as intended; the online business also suffers 10,000 of start-up losses. What is the initial cost of the system?L3