Capitalising Machinery

Marmite

Hi there, can someone please let me know if I am right in remembering that the delivery costs for a machine can be capatalised too? Also, do I capatalise the premium charge that has been added to the invoice?

Thanks for any help.

T.C.

I would say that all costs involved in obtaining the equipment should be capitalised.

PGM

T.C. wrote: »

I would say that all costs involved in obtaining the equipment should be capitalised.

I was say so also.

The principle is the entire cost of getting the asset in place. Whether delivery, labour hours, installation materials, interest (up to the point its running) and buying it.

Andy Blyth

From FRS 15:-

"Whether acquired or self-constructed, a tangible fixed
asset should initially be measured at its cost. Only
costs that are directly attributable to bringing the asset
into working condition for its intended use should be
included. Such costs should be capitalised only for the
period in which the activities that are necessary to get
the asset ready for use are in progress."

"The cost of a tangible fixed asset (whether acquired or
self-constructed) comprises its purchase price (after
deducting any trade discounts and rebates) and any
costs directly attributable to bringing it into working
condition for its intended use.

Directly attributable costs are:

(a) the labour costs of own employees (eg site
workers, in-house architects and surveyors) arising
directly from the construction, or acquisition, of
the specific tangible fixed asset; and

(b) the incremental costs to the entity that would
have been avoided only if the tangible fixed asset
had not been constructed or acquired.

It follows that administration and other general
overhead costs would be excluded from the cost of a
tangible fixed asset. Employee costs not related to the
specific asset (such as site selection activities) are not
directly attributable costs.

Examples of directly attributable costs include:

• acquisition costs (such as stamp duty, import
duties and non-refundable purchase taxes)

• the cost of site preparation and clearance

• initial delivery and handling costs

• installation costs

• professional fees (such as legal, architects’ and
engineers’ fees)

• the estimated cost of dismantling and removing
the asset and restoring the site, to the extent that
it is recognised as a provision under Provisions, Contingent Liabilities and Contingent
Assets’. The fact that the prospect of such
expenditures emerges only some time after the
original capitalisation of the asset (eg because of
legislative changes) does not preclude their
capitalisation."

Marmite

Thanks for your help everyone, very much appreciated it's great to know there's help at hand with these forums, especially when you don't have anyone else to ask.

T.C.

Yes I agree. Sometimes you just need someone to agree with what you already know!

Marmite

So on Sage, is it right that I will have showing in the ie: n/c0020 fixed assets machinery a/c a separate entry just for the delivery of the machine?

Andy Blyth

Marmite wrote: »

So on Sage, is it right that I will have showing in the ie: n/c0020 fixed assets machinery a/c a separate entry just for the delivery of the machine?

Yes, that sounds correct. You will have within that code an entry for the cost of the machine and another entry for the delivery charge, and further entries for any other costs which should be capitalised along with it.

Marmite

That's great thanks for replying.