Page 28 - FINAL CFA I SLIDES JUNE 2019 DAY 8
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Session Unit 8:
29. Long-lived Assets
LOS 29.a: Distinguish between costs that are capitalised and costs that are expensed in the period in which
they are incurred. p. 209
Example: Capitalizing versus expensing: Northwood Corp. purchased new equipment to be used in its manufacturing
plant. The cost of the equipment was $250,000 including $5,000 freight and $12,000 of taxes. In addition to the
equipment cost, Northwood paid $10,000 to install the equipment and $7,500 to train its employees to use the
equipment. Over the asset’s life, Northwood paid $35,000 for repair and maintenance. At the end of five years,
Northwood extended the life of the asset by rebuilding the equipment’s motors at a cost of $85,000. .What amounts
should be capitalized on Northwood’s balance sheet and what amounts should be expensed in the period incurred?
tanties Otherwise OPEX
When a firm constructs an asset for its own use or, in limited circumstances, for resale, the interest that accrues during
the construction period is capitalized as a part of the asset’s cost for better matching of costs and revenues! p. 210 (U.S.
GAAP and IFRS).
