Capitalized Cost

Question 1

What is the general rule for capitalizing expenditures?

Answer 1

Capitalize all expenditures necessary to bring the plant asset to its intended condition and location

Question 2

What are the considerations that must be given when electing to expense or capitalize an item?

Answer 2

1. )Estimated time benefit;

2. )Materiality.

Question 3

List the components of capitalized costs of self-constructed assets

Answer 3

1. )Labor;
2. ) Material;
3. ) Overhead;
4. ) Interest Cost

Question 4

Define “get ready costs”.

Answer 4

All costs incurred to get the asset on the company’s premises and ready for use. Ex. The setting up and testing of new machinery

Question 5

List the general rules on costs to capitalize.

Answer 5

1. ) Cash equivalent price or negotiated acquisition cost

2. ) Get ready costs