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IAS 16 - initial recognition of an asset

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We have capitalised an asset at cost, but not included cost of the freight as this was recharged to the client. The asset was delivered straight to a construction site hence client covered the cost of the freight. Are we going against IAS16? Should the correct treatment be to capitalise the cost of the frieght too? The fact that we recharge the freight cost is a seperate commerical decision?



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By paul.benny
14th Jan 2022 10:06

If you capitalise the freight cost, you also have to capitalise the customer contribution and amortise over the same period as the asset.

Is the freight cost material? And does this happen often? I'd be inclined not to capitalise unless the numbers are significant.

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By Bamboozle
21st Jan 2022 15:45

The recognition cost is the cost to you. Hence you capitalise the purchase price, including import duties and non-refundable taxes etc, but deduct any trade discounts/rebates on the purchase price. So you basically have the net overall cost *to you.*

So it's logical that you wouldn't capitalise any costs that you haven't actually incurred (because you've recharged them in this case).

That approach is consistent with capitalising leases whereby if a lessor offers lease incentives such as reimbursing direct legal costs associated with obtaining the lease, those costs are not capitalised as part of the right of use asset.

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