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Should the cost of an extended warranty purchased be capitalized with the original cost of the asset?

Zach Chandler

in Student Loans

1 answer

1 answer

Jeffrey Rodriguez on April 28, 2019

According to International Financial reporting Standards (IFRS): "The cost of an item of property, plant and equipment comprises: (a) its purchase price... after deducting trade discounts and rebates (b) any costs directly attributable to bringing the asst to the location and condition necessary for it to be capable of operating in the manner intended by management." IAS 16, par 16(b) The basic principle for capitalization of costs on initial recognition, is that only directly attributable costs can be capitalized. This means that the costs eligible for capitalization are its purchase price and the costs of the assets to the location and condition necessary to function as management intended. An extended warranty, so that should not be capitalized along with the cost of the asset, as the physical asset would still be in the location and condition necessary to function as management intended, regardless of whether or not the extended warranty was purchased.

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