Costs excluded from the initial cost

Learning objectives

• Identify the costs excluded from the initial cost (start-up costs, initial operating losses, abnormal amounts of wasted material).L2, L3
• Calculate, from the case data, the amount relating to costs excluded from the initial cost and justify the basis of calculation.L2, L3
• Record the entry relating to costs excluded from the initial cost and state its effect on the financial statements.L2, L3

Normative references

• IAS 40 §23Items that do not increase cost: start-up costs (unless they are needed to bring the property to the condition required for it to operate as management intends), operating losses incurred before the property reaches the planned level of occupancy, and abnormal amounts of wasted material, labour or other resources incurred in constructing or developing the property.

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

3 questions

• An accounting manager states four rules on the costs of a new investment property. Which is incorrect?L2
• Jarmel incurred {total_costs} of expenditure to bring a new investment property into service. This total includes {start_up_costs} of start-up costs and {initial_losses} of operating losses incurred before the property reached the planned occupancy level. The remainder is directly attributable to the acquisition and construction (case assumption). Calculate the cost to be recognised as an asset.L3
• Kestrel Immo has just bought a new investment property. It paid {start_up_costs} in cash for start-up costs (commercial launch campaign). Record the corresponding entry.L3