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An entity purchased new machinery from a supplier before the entity’s year end. The entity paid freight charges for the purchased machinery.

The entity took out

a loan from a bank to finance the purchase. Under IFRS,

what is the proper accounting treatment for the freight and

interest costs related to the machinery purchase?

a. The freight and interest costs should be

immediately expensed.

b. The freight and interest costs should be

capitalized as part of property, plant and

equipment.

c. The interest cost should be capitalized as part of

property, plant and equipment, and the freight

cost should be immediately expensed.

d. The freight cost should be capitalized as part of

property, plant and equipment, and the interest

cost should be immediately expensed.

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Question ajoutée par Utilisateur supprimé
Date de publication: 2015/02/28
DIN BANDHU SINGH
par DIN BANDHU SINGH , Chief Accountant , ELITE TRADING ALLIANCE CO (El Seif Group of Companies)

The freight cost should be capitalized as part of

property, plant and equipment, and the interest

cost should be immediately expensed.

SYED ASIF RAZA
par SYED ASIF RAZA , Manager Accounts & Finance , Fiore Rosso Furniture llc

as per IAS16, freight cost will be capitalized and as per IAS23 " borrowing cost" , interest cost can be capitalized but only on qualifying assets, (that takes substantial period of time to get ready for its intended use or sales). 

Utilisateur supprimé
par Utilisateur supprimé

The Answer is D. Here The asset has been purchased hence there cannot be an interest on the value of the asset.

 

Tranquilino Jr Rivera
par Tranquilino Jr Rivera , General Accountant , Enany Group of Companies

Answer is D. The freight is capitalized and the interest cost is expensed out.

Paras Hiteshkumar Shah
par Paras Hiteshkumar Shah , Financial Controller , Majid Al Futtaim Retail

With reference to IAS16, Machinery should be recognized at cost. Cost includes all costs incurred necessary to bring the machinery to working condition for intended use. So, accordingly, freight charges will be capitalized however interest cost will be expense out. So, the answer is option D.

ahmad al-zahaby
par ahmad al-zahaby , Finance Director , Maharat consulting co.

We think that (b) reasonable answer .

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