Page 21 - FINAL CFA I SLIDES JUNE 2019 DAY 8
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LOS 29.a: Distinguish between costs that are Session Unit 8:
capitalised and costs that are expensed in the 29. Long-lived Assets
period in which they are incurred. p. 209
Example: Capitalizing versus expensing: NC 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, NC
paid $10,000 to install the equipment and $7,500 to train its employees to use the equipment. Over the asset’s life, NC
paid $35,000 for repair and maintenance. At the end of five years, NC extended the life of the asset by rebuilding the
equipment’s motors at a cost of $85,000. What amounts should be capitalized on NC’s balance sheet and what
amounts should be expensed in the period incurred?
Otherwise OPEX
tanties
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).
