1. The Asset Measurement Principle
A non-current asset is initially recorded at its total cash equivalent price on the acquisition date. This includes all reasonable and necessary costs incurred to prepare the asset for its intended operational use.
2. Eligible Cost Components vs. Ineligible Costs
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| Capitalized Costs (Include in Asset Value) | Expensed Costs (Exclude from Asset Value) |
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| Base purchase price (minus trade discounts) | Staff training costs to operate the new asset |
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| Import duties and non-refundable purchase taxes | Maintenance contracts signed at purchase |
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| Site preparation, leveling, and structural changes | Administrative overheads or general office expenses |
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| Professional fees (architects, structural engineers)| Operational losses incurred during initial testing |
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3. Acquisition Journal Entries
When purchasing equipment with professional setup costs, the journal entry bundles all valid expenses into the asset account:
Date Account Titles & Explanation Ref Debit ($) Credit ($)
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2026-08-10 Production Machinery 1510 53,200
Cash / Bank 1010 53,200
(To capitalize total machinery costs:
$50,000 purchase + $2,000 delivery + $1,200 installation)