Costs of open a new facility

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asousa87
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Costs of open a new facility

Post by asousa87 »

Hello all.

A quick question: IAS 16 refers that costs of open a new facility are not attributable direct costs and therefore can not be capitalized.
However, do not provide examples of this opening costs.

For example, for open a new facility, if a company have to purchase some equipment or construct a building, these costs can be capitalized...
They are refering costs of prospecting or desing a new facility?

Thanks in advance.
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Marek Muc
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Re: Costs of open a new facility

Post by Marek Muc »

a piece of equipment or a building are separate tangible assets, so they won't be a part of a cost of a 'facility'

It's true that the wording could be clearer, but what is meant here IMO are start-up and admin costs that are more linked to costs of running a business and should be expensed even though they may be directly linked to a specific 'facility'
asousa87
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Re: Costs of open a new facility

Post by asousa87 »

So, for example, if you have a (internal) team already in the new facility managing the construction / renewal and implementing the plans for the facility construction / machines implementation, you consider this as attributable costs or as these "costs of open a facility"?

Because i do now see these costs not as costs of runnig a business but as costs linked to this construction, in other words, if there was no construction, these costs may not even exist.
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Marek Muc
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Re: Costs of open a new facility

Post by Marek Muc »

I think you can safely add those to the cost of the asset as these are costs of construction

watch out for admin & marketing expenses directly linked to that facility, but not contributing to assets per se
asousa87
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Re: Costs of open a new facility

Post by asousa87 »

Yes, mtk and admin is clear that need to be excluded.
The other ones are more tricky.

Thanks!!
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Marek Muc
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Re: Costs of open a new facility

Post by Marek Muc »

well, I could easily imagine a CFO focused on EBITDA claiming that expenditures on business and strategy of the new 'facility' should be capitalised in its cost 8-)
JRSB
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Re: Costs of open a new facility

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when you put 'open a new facility' I was thinking of the cost of hiring a brass band and fireworks. Guess those would be expensed as not strictly necessary.
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Marek Muc
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Re: Costs of open a new facility

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Fireworks may be considered to be a vital stress test to the fire safety procedures before opening 8-)
JRSB
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Re: Costs of open a new facility

Post by JRSB »

equally the brass band to test the soundproofing. good point.
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