Rules For Determining The Cost Of Plant Assets

Determining the cost of Plant Assets cannot be done whimisically by any organization. There is a clear cut guidelines in IAS 16. It concerns accounting for property, plant and equipment which is otherwise known as fixed assets, including the recognition, determination of their carrying amounts and the depreciation expenses and impairment losses to be recognized in relation to them. Para 16 of IAS 16 states rules for Determining the cost of Plant Assets:

In Determining the cost of Plant Assets, the cost of an item of property, plant and equipment comprises:

(a)   its purchase price, including import duties and non-refundable purchase taxes, after deducting trade discounts and rebates.

(b)   any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management.

(c)   the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located, the obligation for which an entity incurs either when the item is acquired or as a consequence of having used the item during a particular period for purposes other than to produce inventories during that period.

Para 15 of IAS 16 requires the initial measurement to be at cost.  The measurement rule regarding cost of assets applies regardless of how the entity obtains the asset.

The cost of assets  of a gift has a zero cost.

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