ACCA Strategic Business Reporting (SBR) Practice Exam

What is included in the cost measurement for PPE?

1. Administrative expenses and marketing costs

2. Import duties and directly attributable costs

3. Only the purchase price of the asset

4. Depreciation and maintenance costs

The correct answer is: Import duties and directly attributable costs

The cost measurement for Property, Plant, and Equipment (PPE) includes all costs necessary to bring the asset to its intended use and condition. This comprehensive view encompasses the purchase price of the asset, import duties, and any directly attributable costs associated with acquiring the asset, such as installation and legal fees. These costs are critical as they ensure that the asset is ready for its intended purpose, reflecting a true and fair view of the asset's economic value on the balance sheet. In contrast, administrative expenses and marketing costs are not included in the measurement of cost for PPE, as they do not contribute directly to getting the asset ready for use. Additionally, only considering the purchase price of the asset ignores other necessary costs, which would lead to an undervaluation of the asset in financial reporting. Similarly, depreciation and maintenance costs, while essential for understanding the ongoing value and upkeep of the asset, are not part of the initial cost measurement of PPE; these are accounted for separately over time as the asset is utilized.