Capitalization of Dismantling Costs – Why Is It capitalized?

IAS 16 is the accounting standard that deals with property, plant, and equipment. There are numbers of items elements said in paragraph 16 of this standard that allows capitalizing as assets. Those items included:

  • Its purchase price of fixed assets
  • Import duties of assets and non-refundable purchase taxes. Discount and rebate should not take into account.
  • Entity might incur costs to bringing the asset to the location and condition and these costs should also be capitalized.

When into the obligation, the entity might dismantle the build and restore the site into the original condition.

If this is the case, the standard requires an entity to estimate the costs that would be happened and then capitalize those costs as the costs of fixed assets and then depreciate them based on their useful life.

And the estimated cost might be changed from time to time. In this case, discounting should be applied to ensure that the estimated costs are at the present value. And the difference is charged into statements of profit and loss.

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