Accounting for Testing Costs

How should a ‘Company’ record testing costs in its financial statements?
A Company is setting up a new manufacturing facility in Thailand. The Company has invested in machines and equipment for the plant is currently in the trial run or testing stage and testing costs are being incurred.

Keywords: Mazars, Thailand, Accounting, PAEs, IAS 16, TAS 16, NPAEs, TFRS, Testing Costs

3 April 2015

Publicly Accountable Entities (‘PAEs’)

An item of property, plant and equipment should be initially recorded at cost. Cost includes all costs necessary to bring the asset to its working condition for its intended use. TAS 16 and IAS 16 (Property, plant and equipment), paragraph 17 provides some examples of the types of costs that are considered to be directly attributable costs of an asset. In particular, it states that the "costs of testing whether the asset is functioning properly, after deducting the net proceeds from selling any items produced while bringing the asset to that location and condition (such as samples produced when testing equipment);” is a directly attributable cost.

Non-Publicly Accountable Entities (‘NPAEs’)

According to TFRS for NPAEs paragraph 127, the entity should recognise these costs in line with the treatment described above for PAEs.

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