Chap 5

Question 1

Directly attributable costs

Costs to be included

Answer 1

• costs of employee benefits arising directly from the construction or acquisition of the item of PPE
• costs of site preparation
• initial delivery and handling costs
• installation and assembly costs — where buildings are acquired, associated costs could be the costs of renovation
• costs of testing whether the asset is functioning properly
• professional fees.

Question 2

Costs not directly attributable

Answer 2

• Costs of conducting business in a new location or with a new class of customer (including costs of staff training
• costs of introducing a new product or service, including costs of advertising and promotional activities
• Admin and overhead
• Costs of relocating or reorganising part or all of the entity’s operations.
• Costs of opening new facility
• Initial operating losses

Question 3

Costs not directly attributable

Why: admin and overhead

Answer 3

associated generally with company’s operations

Question 4

Costs not directly attributable

Why: Costs of relocating or reorganising part or all of the entity’s operations.

Answer 4

if a number of currently operating assets are relocated to another site, then the costs of relocation are general, and not directly attributable to the item of PPE.

Question 5

Costs not directly attributable

Why: Costs of conducting business in a new location or with a new class of customer (including costs of staff training

Answer 5

Unless the asset is relocated, there is no change in the asset’s ability to operate.

Question 6

Costs not directly attributable

Why: Costs of opening a new facility.
.

Answer 6

costs are incurred after the item of PPE is capable of being used; the opening ceremony, for example, does not enhance the operating ability of the asset.

Question 7

Costs not directly attributable

Why: costs of introducing a new product or service, including costs of advertising and promotional activities

Answer 7

do not change the location or working condition of the asset.

Question 8

Costs not directly attributable

Why: initial operating losses

Answer 8

initial operating losses, such as those incurred while demand for the item’s output builds up. These are not incurred before the asset is ready for use.

Question 9

Three components of cost

Answer 9

1. Purchase price
2. DRC
3. entity is required to estimate any costs necessary to eventually dismantle and remove an asset and restore the site