Question

what is the rule for capitalisation of acquisition cost?

Answer 1

Instead of charging the total cost of an asset to the Income Statement of the period, the cost is expensed off as depreciation over the useful life of that asset. This is known as CAPITALIZATION.

As per IAS and IFRS, Recognition of Capital Asset depends on the following principles

1. It must be used for more than one period
2. It should be used for production of goods or supply of services

Acquisition Costs
The following costs shall be capitalized

a. The price paid for the assets
b. All costs DIRECTLY related to acquisition of assets (the benefit should NOT be available later on, example, taxes paid that can be claimed as input later on CANNOT be capitalized)
Additional costs as described in b above includes commissions, taxes for which input is not available, legal fees paid for acquisition, borrowing costs etc.