- 1 Marks
Question
Given the following information:
- Cost of property, plant and equipment: N5,000,000
- Administrative and general overhead: N750,000
- Installation cost of property, plant & equipment: N500,000
- Cost of entertainment: N150,000
What amount should be capitalized as cost of property, plant, and equipment?
A. N5,500,000
B. N6,250,000
C. N6,400,000
D. N6,700,000
E. N6,900,000
Answer
Answer: A. N5,500,000
Explanation:
The correct answer is A. According to IAS 16, only the directly attributable costs necessary to bring the asset to its working condition for its intended use should be capitalized. These include the cost of the property, plant, and equipment (N5,000,000) and the installation cost (N500,000). Administrative and general overheads, as well as entertainment costs, are not capitalized.
Rundown:
This question tests the understanding of what costs should be capitalized when acquiring property, plant, and equipment in accordance with IAS 16. The correct answer excludes general overhead and entertainment from capitalization.
- Tags: and Equipment, Capitalization, Financial Reporting, IAS 16, Plant, Property
- Level: Level 1
- Uploader: Dotse