Capitalization of Initial cost of asset acquiring
14 May 2010
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7 Comments
Hi to everybody.
My question is that:
the initial costs to acquire an asset like;
the negotiation and traveling expenses incurred by management to acquire an asset, what about such costs of that assets;
in case before finalizing of the deal;
a. it is certain that the asset would be acquired.
b. its is not certain the asset would be acquired.
in both the cases above whether to capitalize such costs or expensed????
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If it is not probable that you will acquire the asset, these costs would be expensed. Once expensed, they cannot be subsequently capitalized.
The basic principle for capitalization of costs on initial recognition, is that only directly attributable costs can be capitalized. This means costs eligible for capitalization are its purchase price and costs to bring the asset to the location and condition necessary to function as management intended.
Generally, I believe it’s inappropriate to capitalize costs incurred before there is a signed contract to purchase the asset.
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