How cost of tangible fixed asset is determined?

Fixed assets or non-current assets can either be tangible or intangible and separate standards provide guidance on both. For most of the tangible fixed assets IAS 16 is considered whereas for most of the intangible fixed assets IAS 38 contains the provisions.

For tangible non-current asset as per IAS 16 Property Plant and Equipment cost of the asset includes:

  1. purchase price of the asset including import duties, nonadjustable taxes etc and net of any discounts or rebates available for such asset
  2. directly attributable costs; costs that are incurred specifically for such asset to bring it to its intended use
  3. estimates of cost to remove the asset or dismantling costs at the end of its useful life. Such costs are estimates and if they are of significant amount then they are to be included at present value

Examples of directly attributable cost includes:

  1. site preparation cost
  2. movement or delivery cost  or carriage cost
  3. assembly cost and cost of installation
  4. registration and licensing fee
  5. legal fee and stamp duty
  6. cost of feasible study
  7. cost of testing in the pilot run
  8. training costs in rare circumstances

However, the following costs are not included or capitalized as cost of the asset:

All such costs that are not directly attributable or would have been incurred irrespective of the asset or asset could have still been brought to its intended use without incurring such costs then all such costs are not added to the cost of the asset and are mostly expensed out. Examples include:

  1. cost of extended warranty
  2. expenses in the nature of general or administrative overheads
  3. pre-opening costs e.g. cost of opening new branch and pre-operating costs such  as promotional costs

However there are some situations where entity construct an asset in-house called self-constructed asset and also we need to deal with the borrowing costs that are capitalized if certain conditions are met. Check out following links to learn about:

  1. cost of self-constructed asset
  2. borrowing costs [IAS 23]


  1. Can you give me a view on Wip on Project Accounting That is using WIP Method = Cost of sales Account and the way to prepare the P& L and Balance sheet.

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