Audit Lowe Down – How do we account for the costs incurred when acquiring an asset?

Lowe Lippmann Chartered Accountants

How do we account for the costs incurred when acquiring an asset?

When we acquire an asset such as property, plant and equipment, intangibles or inventory there are often significant other costs incurred as part of the purchase process, including delivery, stamp duty, installation fees.

Whether we capitalise these to the value of the asset or expense them as incurred can make a significant difference to an entity’s reported position or performance.

Since we have accounting standards for specific assets, the treatment can vary depending on the asset and the relevant standard.

A summary of some common expenses and their treatment under four accounting standards has been included below.

The four standards considered are:

AASB 102 Inventories
AASB 116 Property, Plant and Equipment
AASB 138 Intangible Assets
AASB 140 Investment Property.

Cost	AASB 102	AASB 116	AASB 138	AASB 140
Delivery costs	✔	✔	✔	✔
Stamp duty	n/a	✔	✔	✔
Installation fees	n/a	✔	n/a	n/a
Professional fees to bring assets to working condition	n/a	✔	✔	✔
Import duties	✔	✔	✔	n/a
Training costs	X	X	X	n/a
Initial testing costs	✔	✔	✔	n/a
Transport insurance	✔	✔	n/a	n/a
Environmental / safety inspection costs	X	✔	n/a	✔
Marketing and promotional costs	X	X	X	X
Ongoing maintenance	X	X	X	X
Storage	X	X	X	X
Administrative and general overhead costs	X	X	X	X

It is important to consider the costs you incur when purchasing an asset and the accounting standard requirements as we continue to see many entities capitalising all costs which can often result in material errors in the financial statements.

Please do not hesitate to contact your Lowe Lippmann Relationship Partner if you wish to discuss any of these matters further.

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