Question

Which of the following is/are capitalised along with the purchase price a fixed asset?
I. Import duty
II. Delivery and handling cost
III. Cash discount
IV. Cost of installation
Select the correct answer using the codes given.

• A. III only
• B. II and III
• C. I, II and IV
• D. I, II, III and IV

Answer 1

The correct option is C I, II and IV

Expenditure incurred up to the date at which the asset becomes ready to commence commercial production ( i.e. production intended for sale or capitative consumption) should be capitalized and expenditure incurred after this cut off date should be treated as revenue expenditure. Examples of such expenses to be capitalized include :

1. Freight & in- transit Insurance
2. Import duties and other non-refundable taxes
3. Cartage and Carriage Expenses
4. Site preparation cost
5. Installation cost
6. Professional fees for Architects and engineers
7. Expenditure incurred on test runs and experimental production
8. Borrowing cost incurred up to the date at which substantially all the activities necessary to prepare the qualifying asset for its intended use are complete.