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What costs are included in the initial cost of property, plant and equipment when they are...

What costs are included in the initial cost of property, plant and equipment when they are purchased? What is the rationale for including costs in addition to the purchase price of the asset?

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Answer #1

Plant, Property and equipment are fixed assets which help the firm in generating revenue. All the costs incurred in connection in getting the asset ready for intended use should be capitalized. In case of Plant and equipment such costs include purchase price ( less any discount), freight incurred, permit and license fees, installation charges, Initial set up charges like technician cost, programming, and similar charges incurred during set up should be capitalized since they make the assets available for intended use. In case of land charges like title fees, registration, survey costs, site preparation cost, etc should be capitalized

The rationale for capitalization is they make ready the asset for intended use

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