The accounts team of Infant Garments Private Ltd., while ascertaining the cost of Property, Plant and Equipment (PPE), included various expenses…

Recognition Criteria for PPE: The cost of an item of PPE should be recognised as an asset if, and only if: It is probable that future economic benefits associated with the item will flow to the enterprise, andThe cost of the item can be measured reliably. Elements of Cost to be included at the time of recognition: The cost of an item of property, plant and equipment comprises: its purchase price, including import duties and non-refundable purchase taxes, after deducting trade discounts and rebates.any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management.the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located (decommissioning, restoration and similar liabilities), the obligation for which is incurred on acquisition of the asset or as a consequence of its use. Treatment of expenses given in the question Cost of testing the machine (₹ 1,80,000): Testing costs incurred to check whether the asset is functioning properly before it is put to use are directly attributable costs and are therefore capitalised as part of the cost of PPE. Cost of inauguration of the new machine (₹ 1,00,000): Inauguration expenses are not directly attributable to bringing the asset to the condition necessary for its intended use and do not generate future economic benefits. Hence, such costs are not capitalised and should be charged to the Statement of Profit and Loss.