HR & Associates are the auditors of a large manufacturing company. The company has recently invested huge amount in Property, Plant and…

CA Intermediate · Auditing and Ethics · PYQS · May 2024
HR & Associates are the auditors of a large manufacturing company. The company has recently invested huge amount in Property, Plant and Equipment (PPE) for its new unit. They have added many incidental expenses to the cost of PPE. The junior audit team members are not sure about which costs should be excluded from the cost of PPE. Give examples of costs that should not form part of costs of PPE.

Suggested Answer and Working Notes:

Examples of costs that are not costs of an item of property, plant and equipment are: costs of opening a new facility or business, such as, inauguration costs; costs of introducing a new product or service (including costs of advertising and promotional activities); costs of conducting business in a new location or with a new class of customer (including costs of staff training); and administration and other general overhead costs.

Topics: Audit of Items of Financial Statements

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