Non-Current Assets Expanded

Property, plant and equipment

Stand-alone asset

1/1/X1, XYZ bought a production machine #123 for 60,000.

For simplicity, this example does not discuss any additional costs such as agent's fees, transportation, installation, break-in, development, disposal, interest, etc.

The following (self-manufactured asset) example does.

It estimated the machine would be useful for 12 years and could be sold for 9,000.

It elected to depreciate the machine using a straight-line method.

An asset's "useful life" is the time over which it is expected to serve its purpose (a purpose).

Assets acquired for a particular purpose may or may not be reassigned to a different purpose.

For example, if a company acquired a machine to manufacture a particular product for a three-year production run, the machine's useful life would be 3 years.

If, on the other hand, the company intended to transition the machine to successive products, the machine's useful life would be longer.

As US GAAP does not specify how to determine useful life, entities may use judgment or refer to IFRS.

While ASC 360-10-35-4 requires entities to depreciate assets over their useful life, ASC 360-10 fails to specify how useful life should be determined leaving companies free to exercise judgment in setting depreciation periods.

Being able to use judgment does not, however, imply that companies are free to use any depreciation period they like.

If a period proves to be materially inaccurate, as this is generally apparent only at or near its end, it will trigger a restatement as outlined in ASC 250-10-50-12.

Caveat: intentionally failing to establishing realistic depreciation periods can have serious consequences because this is a method occasionally used to manage earnings, something the SEC takes especially seriously.

ASC 250-10-S99-1: “...the staff believes that a registrant and the auditors of its financial statements should not assume that even small intentional misstatements in financial statements, for example those pursuant to actions to "manage" earnings, are immaterial.”

Note: the only way to correct errors is retrospectively, in this case going back to the period the asset was acquired.

Also note: even if the correction of an intentional error is not sufficiently material to warrant a restatement of the financial statements, the error would still need to be disclosed and reported to the SEC.

While both ASC 360-10-35-4 and IAS 16.50 require useful life, only IAS 16.56 outlines criteria.

IAS 16.56 outlines four criteria ("factors") for determining useful life.

The first should be used if possible, while the remaining three should be applied as appropriate.

expected usage (a.k.a. units of production)
physical wear and tear
technical or commercial obsolescence
legal or similar limits

Units or production not only yields better results, it can also reduce accounting complexity.

IAS 16.55 (edited emphasis added) states: ...depreciation does not cease when the asset becomes idle or is retired from active use unless the asset is fully depreciated. However, under usage methods of depreciation the depreciation charge can be zero while there is no production.

While the difference between depreciation that has ceased and a zero depreciation charge is minimal (the former implies depreciation will not be restarted in the future), being able to stop/start depreciation can bring practical benefits.

For example, assume a company estimates it will be able to manufacture and sell 10,000 units of a product per year for 10 years. To manufacture the product, it purchases a machine for 10,000.

To save effort, it assigns a fixed 10-year useful life to the asset and elects straight-line depreciation (and ignores residual value).

If production hits the target, a depreciation charge of 0.10 will accrue to year unit. However, if production falls short, say 5,000 units, a depreciation charge of 0.20 would accrue to year unit, increasing cost of sales (relative to production volume) and decreasing gross profit.

While it is possible to adjust depreciation periods on the basis of an annual review (IAS 16.51), if a units of production method is used, the adjustment occurs automatically.

For example, a production die can have a 10,000 unit limit until exceeds engineering tolerance.

Each time a unit is product, a depreciation charge of 1/10,000 would be recognized.

The drawback of this method: relatively few assets have precisely definable usage parameters.

The disadvantage of this method: the asset will need to be disposed of when the limit is reached.

This criterion is similar expected usage because it reflects the physical attributes of an asset.

It would be used in situations where units of production cannot be determined.

For example, a press utilizing a production die would most likely not, unlike the die, have a precise technical limit on the number of units it could produce.

Nevertheless, the press would eventually deteriorate physically, so would eventually need to be replaced for this reason.

In contrast to the previous two, this criterion is external.

Instead of examining how the entity uses the asset, it looks at how the asset deteriorates due to changes in technology or market conditions, both of which are generally external to the entity (and often beyond its control).

For example, an entity acquires a machine that can print 12nm circuits. Subsequently, a competitor develops a machine that can print 8nm circuits. This change in technological means the 12nm machine is now (at least partially) technologically obsolete.

Commercial obsolescence is the other side of the same coin.

Before 8nm chips were available, 12nm chips (almost certainly) sold for more than after 8nm chips became available.

Note: while commercial obsolescence can be used to determine depreciation periods, IAS 16.62A prohibits a "depreciation method that is based on revenue that is generated by an activity that includes the use of an asset" in effect disallowing its use in determining deprecation methods.

Also note: as US GAAP does not provide similarly detained guidance, "contribution to earnings" can be used to determine both depreciation periods and depreciation methods.

In practice, this criteria usually applies to intangible assets such as patents or licensing agreements.

It would also apply to right of use assets under IFRS 16, though these are also (technically) intangible assets.

When it comes to property plant and equipment, this criterion would most often apply to assets like leasehold improvements, if the lease term is shorter than the useful life of the improvement.

As no authoritative generally accepted accounting principles (ASC 105-10-05-1) specifically address useful life, nonauthoritative accounting guidance such as IFRS (ASC 105-10-05-3.d) may be considered (ASC 105-10-05-2), implying the criteria outlined in IAS 16.56 could be used to determine accounting policy in a US GAAP context.

Most items of property, plant and equipment have some remaining value at the end of their useful lives.

If this residual | salvage value is material, the asset should be depreciated to it, not zero.

IAS 16.6 defines residual value while ASC 360-10-35-4 refers to salvage value.

Since both reflect an estimate of the value an asset will have at the end of its useful life, the terms are interchangeable.

To establish residual | salvage value in practice, a company will generally use its historical experience.

For example, if it commonly sells class A machines for an average of 10% or their acquisition cost and class B machines for 20%, it would set residual | salvage values of 10% and 20% respectively.

It is also possible to estimate using observable inputs in a manner consistent with IFRS 13.67 | ASC 820-10-35-36.

For example, a company could determine the average price comparable assets bring at auction (although a quick and dirty internet search is often good enough).

However, in practice, sticking to the 10% to 20% rule of thumb is often the best option.

Depreciating PP&E to zero is common practice under many national GAAPs.

However, under IFRS | US GAAP, if the asset has residual | salvage value, not recognizing it would be an error.

Although not setting a residual | salvage for assets that are eventually sold (demonstrating that they had residual | salvage value) would be an error, if would rarely be sufficiently material to trigger a restatement as outlined in IAS 8.42 | ASC 250-10-50-12.

Caveat: intentionally failing to establish residual | salvage in situations where residual | salvage demonstrably exists to achieve a particular end would always be material as outlined in IAS 8.41 | ASC 250-10-S99-1.2

Note: the only way to correct errors is retrospectively, in this case going back to the period the asset was acquired.

This example uses a straight-line depreciation method because it is both simple and commonly used.

This should not be taken as a suggestion to use this method in all circumstances.

Instead, companies should elect a method suitable to the circumstances.

IFRS and US GAAP provide additional guidance including both suggested and prohibited methods.

A discussion of depreciation methods is provided as a standalone section of this page.

IAS 16.62A prohibits methods based on revenue (a.k.a. contribution to earnings).

ASC 360-10-35-9 prohibits tax deprecation (specifically ACRS) unless it reflects a reasonable range of the asset's useful life and ASC 360-10-35-10 prohibits the annuity method (a.k.a. decelerated depreciation).

It sold the machine for 9,500 on 12/31/X12.

1/1/X1 \| 1.1.X1
Machine #123		60,000
	Accounts payable		60,000

12/31/X1 to X12 \| 31.12.X1 to X12
Depreciation expense		4,250
	Accumulated depreciation: Machine #123		4,250
12/31/X12 \| 31.12.X12
Accumulated depreciation: Machine #123		51,000
Cash		9,500
	Machine #123		60,000
	Gain on asset disposal		500

When a company disposes of an item of PP&E, it recognizes the difference between its net book value (carrying amount) and the sales price (if any) as a gain/loss.

Both IFRS and US GAAP prohibit recognizing revenue/expense, common practice in many national GAAPs.

IAS 16.68 (edited, emphasis added): The gain or loss arising from the derecognition of an item of property, plant and equipment shall be included in profit or loss... Gains shall not be classified as revenue.

While the paragraph is not similarly explicit with respect to losses, this is not because the guidance is asymmetrical. Instead, it is because in IFRS Expenses (the aggregated item) comprise expenses and losses (the disaggregated items).

An additional discussion of revenue vs gains and expenses vs losses is provided on the accounting elements page.

As outlined in ASC 610-20-32-2, when a company derecognizes a non-financial asset, it recognizes a gain or loss equal to the difference between amount received for the asset (ASC 610-20-32-3 to 6) and the asset's carrying amount.

Many national GAAPs do not distinguish between revenue/expenses gains/losses. The result is that when a company applying such a GAAP derecognizes an asset, it recognizes revenue/expense, which can have a dramatic impact on its reported results.

For example, some time ago a Czech company decided to list on a US exchange.

After retaining an underwriter, the underwriter retained us to draft a report consistent with US GAAP.

As, unlike CZ GAAP, US GAAP distinguishes revenue/gains and expenses/losses, this was one the first adjustments.

After reviewing our preliminary results, the underwater decided against pursuing a listing.

Our first step was to eliminate the major differences and draft a preliminary report.

Up to then, the company had only applied CZ GAAP.

As CZ GAAP does not distinguish between revenue and gains, when a company disposes of its fixed assets, it recognizes revenue in the amount received and an expense in the asset's book value.

Eliminating this difference caused a significant portion of its previously reported revenue to disappear.

In and of itself, this may have been enough to dissuade a listing, but there was more:

As the sale of receivables is recognized similarly by CZ GAAP, a similar adjustment had to be made to factored receivables.
As CZ GAAP (at the time) required increases in inventory and self-manufactured asset costs to be capitalized with a credit to revenue, this also had to be adjusted.

Eliminating the differences caused over half of the company’s previously reported revenue to disappear.

But there was more:

The company did not recognize the full value of its lease assets nor any associated liabilities because CZ GAAP does not require leased assets to capitalized nor liabilities to be recognized. It only requires the capitalization of advance payments, which are amortized over the lease term.
The company also did not recognize all of its leased assets because CZ GAAP does not require capitalization of operating leases even if their term is for substantially all the underlying asset's economic life.
The company also did not recognize all its contingent liabilities because CZ GAAP does not generally require recognition of constructive obligations.
The company also failed to distinguish between cost of sales, selling and administrative expenses as this distinction is not required by CZ GAAP.
The company also capitalized both development and some research as well as employee training which, at the time, was consistent with CZ GAAP.
The company also misapplied CZ GAAP guidance, for example by using tax depreciation periods for financial reporting purposes, but an examination of these issues was beyond the scope of our engagement.

What a mess.

A second step was not necessary.

After reviewing our preliminary report, the underwater decided to terminate its relationship with the company, which eventually wound up in receivership.

Loss on disposal

Same facts as above, except XYZ sold the machine for 8,500.

12/31/X12 \| 31.12.X12
Accumulated depreciation: Machine #123		51,000
Cash		8,500
Loss		500
	Machine #123		60,000

Self-constructed asset

1/1/X4, XYZ began constructing production line #123 to manufacture newly designed product #123.

While IAS 16 mentions self-constructed assets, IAS 16.22 states: the cost of a self-constructed asset is determined using the same principles as for an acquired asset...

IAS 16.22 goes on to state: if an entity makes similar assets for sale in the normal course of business, the cost of the asset is usually the same as the cost of constructing an asset for sale (see IAS 2)...

This implies, even if a company does not produce similar assets for sale in the normal course of business, it should still apply the reasoning outlined in IAS 2.

Specifically, IAS 2.23 states: The cost of inventories of items that are not ordinarily interchangeable and goods or services produced and segregated for specific projects shall be assigned by using specific identification of their individual costs.

Thus, when a company self-constructs an item of PP&E, it would use a method that specifically identifies individual costs (a.k.a. full absorption costing) and associates those costs with the item of PP&E being self-constructed.

For their part, neither ASC 360-10-25 nor 30 specifically mention self-manufactured assets at all.

Nevertheless, applying the scant guidance they do provide generally yields similar results.

The absence of detail in ARB 43 (ASC 360's predecessor) led the AICPA (specifically, the former AcSEC) to publish a proposed SOP in 2001. However, in the wake of the Sarbanes-Oxley act, the AICPA lost its status as standard setter so an SOP never came to be.

Before the ASC (link: FASB), GAAP comprised FASs, APBs, ARBs, etc.

When the ASC went live, it subsumed this guidance, including ARB 43 (link: FASB).

The difficulty, ARB 43's guidance was rudimentary (at best).

The AICPA tried to redress this shortfall (though many considered its proposed solution overkill), but failed.

For its part, the FASB has never perceived the problem, so has no plans (link: FASB) to fix it.

Nevertheless, the proposed SOP is still referred to (for example).

Unfortunately, the link to the proposed SOP on the FASB's site (link: fasb.org) is broken.

Fortunately, the University of Mississippi has published a copy (link: olemiss.edu).

In case this link is ever broken, a copy of this copy has also been placed here.

A pre-release marked up version is also available here.

Although ASC 360-10-30 does not specifically refer to ASC 330, ASC 360-10-30-2 does stipulate (paraphrased): the activities necessary to bring an asset to the condition and location necessary for its intended use encompass the physical construction of the asset and all the steps required to prepare the asset for its intended use.

ASC 330-10-30-1 (edited) states: ... cost means in principle the sum of the applicable expenditures and charges directly or indirectly incurred in bringing an article to its existing condition and location. It is understood to mean acquisition and production cost...

As bringing an item of inventory to its existing condition and location (ASC 330-10-30-1) is comparable to bringing an item of PP&E to the condition and location necessary for its intended use (ASC 360-10-30-2), the guidance in ASC 330-10-30 should be considered when applying the guidance in ASC 360-10-30.

IAS 16.9 specifies that does not prescribe the unit of account ("measure for recognition, ie what constitutes an item of property, plant and equipment").

As XYZ intended to acquire, use and dispose of the production line as a single item, it elected to recognize the line as a single unit of account.

For its part, ASC 360-10-25 does not specify does not prescribe the unit of account but simply does not prescribe the unit of account.

Note: it does mention a "unit of accounting" in the context of impairment (ASC 360-10-15-4), but this guidance does not preclude recognizing a composite item, such as a production line, as s single asset for impairment purposes (below).

Development and design (product)

1/1/X1, XYZ began researching a new product. It incurred costs of 90,000 obtaining new knowledge. By 6/30/X2, it completed this phase, and decided to go ahead with the product, which it designated #123.

IAS 38 divides R&D into two phases. The first is research (IAS 38.54 to 56).

As outlined in IAS 38.56, research comprises:

obtaining new knowledge (e.g. laboratory research)
searching for, evaluating and selecting applications for this knowledge
searching for alternative to materials, devices, products, processes, systems or services
formulating, designing, evaluating and selecting alternatives for new or improved materials, devices, products, processes, systems or services

In contrast, ASC 730-10-55-1 does not distinguish between research and development.

Nevertheless, the activities it associates with research are similar.

Laboratory research aimed at discovery of new knowledge
Searching for applications of new research findings or other knowledge
Conceptual formulation and design of possible product or process alternatives
Testing in search for or evaluation of product or process alternatives
Modification of the formulation or design of a product or process

Starting 7.1.X2, it constructed and tested pre-production prototypes. It also designed new machine tools, jigs and dies to manufacture the product. By 12/31/X3, it completed this phase incurring costs of 45,000 and 40,000 respectively.

IAS 38 divides R&D into two phases. The second is development (IAS 38.57 to 64).

As outlined in IAS 38.59, development comprises:

designing, constructing and testing pre-production or pre-use prototypes and models
designing tools, jigs, moulds and dies utilizing new technology
designing, constructing and operating a pilot plant(s)
designing, constructing and testing new or improved materials, devices, products, processes, systems or services

IAS 38 does not specify what a pilot plant is, only that it is “not of a scale economically feasible for commercial production.”

In practice, to be safe, this is generally interpreted to mean a production facility whose potential production volume will never be sufficient to cover its overhead (fixed and variable).

Note: if a pilot plant is later used for commercial production, the previously recognized development costs would need to be reclassified as outlined in IAS 8.42.

In contrast, ASC 730-10-55-1 does not distinguish between research and development.

Nevertheless, the activities it associates with development are similar.

Design, construction, and testing of preproduction prototypes and models
Design of tools, jigs, molds, and dies involving new technology
Design, construction, and operation of a pilot plant that is not of a scale economically feasible to the entity for commercial production
Engineering activity required to advance the design of a product to the point that it meets specific functional and economic requirements and is ready for manufacture
Design and development of tools used to facilitate research and development or components of a product or process that are undergoing research and development activities.

ASC 730-10-55-1 does not specify what a pilot plant is, only that it is "not of a scale economically feasible to the entity for commercial production."

In practice, to be safe, this is generally interpreted to mean a production facility whose potential production volume will never be sufficient to cover its overhead (fixed and variable).

Note: if a pilot plant is later used for commercial production, the previously recognized R&D expenses would be adjusted and financial statements restated as outlined in ASC 250-10-45-23.

During the development phase, XYZ had also purchased two patents for 12,500 each. Patent #321 covered knowledge XYZ had rediscovered during phase one and its purpose was to allow XYZ to avoid paying royalties to the patent holder. Otherwise, it had no use. Patent #322 covered new knowledge which XYZ planned to use to develop of product #123 and additional, future products. Both patents had a remaining legal life of 10 years.

During the development phase, XYZ had also acquired equipment for 100,000. While the equipment had been acquired to test prototypes of product #123, XYZ planned to use it to test prototypes of other, future products. It estimated the equipment’s useful life to be 10 years and residual | salvage value 10,000.

In addition to equipment, ASC 730-10-25-2.a outlines that material and facilities can be associated with research and development activities.

However, in order for any item to be capitalized, it must have an alternative future use. If any item is only associated with a particular research and development project, it must be expensed.

In this example, the equipment should be capitalized as (for example) "R&D test equipment" if it were to be used in additional, future R&D projects. On the other hand, if it were to be repurposed, it could be recognized as generic "Test equipment" in that its depreciation would be recognized in R&D while it was used for this purpose.

While IAS 38.66 does not specifically address either equipment or facilities, the accounting for these items can be inferred by considering that the design, construction and operation of pilot plants can be associated with development (IAS 38.59.c).

IAS 38 does not specify what a pilot plant is, only that it is “not of a scale economically feasible for commercial production.”

In practice, to be safe, this is generally interpreted to mean a production facility whose potential production volume will never be sufficient to cover its overhead (fixed and variable).

Note: if a pilot plant is later used for commercial production, the previously recognized development costs would need to be reclassified as outlined in IAS 8.42.

As outlined in IAS 16.7, the cost of acquiring any item of PP&E (including, for example, equipment purchased for development activities) is capitalized if the item will bring probable future economic benefits and has a cost that can be reliably measured.

This implies, in contrast to US GAAP, development equipment acquired for a particular development project may be capitalised under IFRS.

However, as "the useful life of an asset is defined in terms of the asset’s expected utility to the entity" (IAS 16.57), equipment acquired for a particular development project would be depreciated over the length of that project.

12/31/X3, XYZ received patent #323 covering the knowledge it had discovered during the research phase. The associated legal costs and fees were 6,000.

IFRS | US GAAP

1.1.X1 to 30.6.X2 (for illustration, two 1½ year periods are presented)
Research (expense)		90,000
	Employee benefits		90,000

As stated in IAS 38.54: No intangible asset arising from research (or from the research phase of an internal project) shall be recognised.

IAS 38 does not outline the costs to be associated with research and development.

It only discusses costs recognizable as an internally generated intangible asset (IAS 38.66) including: materials and services, employee benefits, registration or legal fees, and amortisation of other intangible assets (such as patents and licenses).

In contrast, ASC 730-10-25-2 does provide an "exhaustive" list of costs that may be associated with R&D.

While technically exhaustive, item e. is defined in a way that makes the list fairly flexible.

Materials, equipment, and facilities (with equipment and facilities, either their cost or the associated depreciation).
Payroll (wages, salaries and related personnel costs)
Intangible assets (like equipment and facilities either their cost or associated amortization)
Services (generally professional services from researchers, developers, engineers, architects, consultants specializing in obtaining permits or licenses, etc.)
Other indirect costs (excluding general and administrative expenses not clearly related to research and development activities)

As this list does not contradict any guidance in IAS 38, it could be applied in an IFRS contest (as allowed by IAS 8.12)

7.1.X2 to 31.12.X3
Development: Product #123 (intangible asset)		100,375
Patent #321		12,500
Patent #322		12,500
Development equipment (PP&E)		100,000
Amortisation expense: Patent #321		1,875
	Employee benefits (paid or payable)		85,000
	Cash, Payables, Etc.		125,000
	Accumulated amortization: Patent 321		1,875
	Accumulated amortization: Patent 322		1,875
	Accumulated depreciation: Test equipment		13,500

As outlined in IAS 38.57, development costs may be capitalized provided the criteria in the paragraph are met.

The criteria (summarized) are:

it is technical feasible to complete the asset
the company intends to complete the asset
the company can sell or use the asset when complete
the company can demonstrate how (through sale or use) the asset will generate economic benefits
the company has adequate technical, financial and other resources to complete the asset
the company can measure the costs incurred in to develop the asset

As XYZ deemed it had met these criteria (especially criteria c. and d.), it capitalized the development costs.

As outlined in IAS 38.66, capitalizable costs include:

materials and (third party) services
employee benefits
registration fees and legal costs
amortisation of intangible assets

While paragraph 66 only discusses intangible assets (only specifically mentions patents and licenses), it also states that these are examples. Consequently, the same logic would apply to, for example, the equipment used to test the prototypes used to develop the product.

XYZ calculated capitalizable development costs:

Constructing and testing prototypes (Parts, Labor, Material, etc.)		45,000
Designing new machine tools, jigs and dies (Parts, Labor, Material, etc.)		40,000
Amortization: Patent #322		1,875
Depreciation: Development equipment		13,500
Capitalizable development costs		100,375

1,875 = 12,500 [cost] ÷ 10 [useful life] x 1.5 [years]

For simplicity, this example assumes the item was acquired at the half way point of the project.

Note: as patent #323 was granted for knowledge discovered during the research phase, its amortization could not be included in product #123 (even if it had been granted before or during the development phase).

13,500 = (100,000 [cost] - 10,000 [residual | salvage value] ) ÷ 10 [useful life] x 1.5 [years]

For simplicity, this example assumes the item was acquired at the half way point of the project.

As outlined in IAS 38.21, an intangible asset may be recognized if (a) it will probably bring future economic benefits and (b) its cost can be measured reliably.

As outlined in IAS 38.12 it must also be identifiable and, as outlined in IAS 38.13 to 16, controlled by the entity.

As outlined in IAS 38.17, the future economic benefits may include revenue, cost savings, or other benefits.

As outlined in IAS 38.26, a cost is reliably measurable it the item is purchased, especially if purchased for cash.

In evaluating patent #321, XYZ considered it would bring two economic benefits. One, it would generate a cost savings (by eliminating the need to pay royalties). Two, it would prevent others from using the patented technology.

Note: IFRS and US GAAP provide significantly different guidance for assets acquired for R&D purposes.

Under US GAAP (ASC 730-10-25-2), any asset whether tangible (materials, equipment or facilities.) or intangible may only be capitalized if it has an alternative use apart from the particular R&D project.

If it does not, it must be expensed (although a separate R&D project does qualify as an alternative use).

Consequently, in this example, as patent #321 had no use other than potentially saving some cost of producing the particular product being developed, it would be expensed under US GAAP.

As IAS 38 does not specify that acquired assets must have an alternative use, patent #321 would be capitalized under IFRS.

While IAS 38 does address "defensive intangible assets", they are discussed in IFRS 3.B43.

Although IFRS 3 provides guidance on intangible assets acquired in a business combination, the same logic may, by analogy, be applied to all intangible asset.

Considering the second benefit, XYZ decided to amortise the patent over its remaining legal life rather than the useful life of the developed asset.

However, as the patent was not used to develop the product #123, this amotisation was not recognized (IAS 38.66.d) in the product's development.

As outlined in IAS 38.21, an intangible asset may be recognized if (a) it will probably bring future economic benefits and (b) its cost can be measured reliably.

As outlined in IAS 38.12 it must also be identifiable and, as outlined in IAS 38.13 to 16, controlled by the entity.

As outlined in IAS 38.17, the future economic benefits may include revenue, cost savings, or other benefits.

As outlined in IAS 38.26, a cost is reliably measurable it the item is purchased, especially if purchased for cash.

In evaluating patent #322, XYZ considered it would bring two main economic benefits. One, it would generate income as part of the developed technology. Two, it could be used in future developed technology.

Obviously, like patent #321, patent #322 would also prevent others from using the patented technology but, in this case, it was not a main benefit.

Considering these benefits, XYZ decided to amortise the patent over its remaining legal life rather than the useful life of the developed asset, although it did recognize a portion of the amortisation (as outlined in IAS 38.66.d) in the product's development.

As patent #321 was not used to develop the product #123, its amotisation was not recognized (IAS 38.66.d) as development.

1,875 = 12,500 [cost] ÷ 10 [useful life] x 1.5 [years]

For simplicity, this example assumes the item was acquired at the half way point of the project.

31.12.X3
Patent #323		6,000
	Cash, Payables, Etc.		6,000

In general, as outlined in IAS 38.21, an intangible asset may be recognized if (a) it will probably bring future economic benefits and (b) its cost can be measured reliably.

However, as patent #323 was granted for activities carried out in the research phase, though they were reliably measurable, the costs associated with those activities could not be capitalised (IAS 38.54).

On the other hand, the fees to register it could (IAS 38.66.c), provided it brough at least one economic benefit.

As the patent could be used in the design, construction and testing of a chosen alternative for new or improved materials, devices, products, processes, systems or services until it expired, it brought one such benefit.

Obviously, like patents #321 and #322, it could also prevent others from using the knowledge it covered, so to brought two benefits.

But, preventing others from using or benefiting from the economic benefits comprising an asset is the essence of control, so is common to all assets, not just intangible ones.

Note: as the knowledge covered by patent #323 had been used to develop product #123, a portion of its amortisation could have been included in product #123's development cost. For simplicity, this illustration does not show this.

1/1/X1 to 6/30/X2 (for illustration, two 1½ year periods are presented)
Research (expense)		90,000
	Payroll (wages and salaries)		90,000

As outlined in ASC 730-10-25-1, all research costs are expensed as incurred.

ASC 730-10-25-2 provides an "exhaustive" list of costs that may be associated with R&D.

While technically exhaustive, item e. is defined in a way that makes the list fairly flexible.

Materials, equipment, and facilities (with equipment and facilities, either their cost or the associated depreciation).
Payroll (wages, salaries and related personnel costs)
Intangible assets (like equipment and facilities either their cost or associated amortization)
Services (generally professional services from researchers, developers, engineers, architects, consultants specializing in obtaining permits or licenses, etc.)
Other indirect costs (excluding general and administrative expenses not clearly related to research and development activities)

7/1/X2 to 12/31/X3
Development (expense)		112,875
Patent #322		12,500
R&D equipment (PP&E)		100,000
	Payroll (wages and salaries)		85,000
	Cash, Payables, Etc.		125,000
	Accumulated amortization: Patent 322		1,875
	Accumulated depreciation: Test equipment		13,500

As outlined in ASC 730-10-25-1, all development costs are expensed as incurred.

While this difference (IFRS allows some development to be capitalised) and can lead to significantly higher expenses being reported under US GAAP, it also greatly simplifies the accounting.

All things considered, while it tends to make management sad, US GAAP’s approach to R&D puts a smile on most accountants.

Capitalising development is dangerous.

While it is allowed, in order for it to be allowed, the entity must (among other things) demonstrate its ability (IAS 38.57.c) to sell the developed asset and (IAS 38.57.d) that a market, which will probably generate future economic benefits, for the developed product actually exists.

This implies, if the product fails to generate a profit, it will not generate economic benefits, which means the entity could not have demonstrated it would, and so it misapplied this guidance.

Obviously, if the development occurred over several period, the only way to correct the error is to restate those periods which makes everyone, from management and accounts to auditors, regulators and investors, unhappy.

The costs associated with R&D comprised:

Constructing and testing prototypes (Parts, Labor, Material, etc.)		45,000
Designing new machine tools, jigs and dies (Parts, Labor, Material, etc.)		40,000
Patent #321		12,500
Amortization: Patent #322		1,875
Depreciation: Development equipment		13,500
R&D expenses		112,875

As outlined in ASC 730-10-52-2.c, costs of intangible assets purchased from others for use in research and development activities may be capitalized if they have an alternative future use, including different research projects.

To reinforce this guidance, ASC 350-30-25-5 states (edited, emphasis added): A defensive intangible asset, other than an intangible asset that is used in research and development activities, shall be accounted for as a separate unit of accounting ... For guidance on intangibles that are purchased from others for a particular research and development project ... see Subtopic 730-10.

As patent #321 had no other use (apart from being defensive), XYZ expensed it as outlined in ASC 730-10-52-2.c.

As outlined in ASC 730-10-52-2.d, costs of intangible assets purchased from others for use in research and development activities may be capitalized if they have an alternative future use, including different research projects. "The amortization of those intangible assets used in research and development activities is a research and development cost."

1,875 = 12,500 [cost] ÷ 10 [useful life] x 1.5 [years]

For simplicity, this example assumes the item was acquired at the half way point of the project.

As outlined in ASC 730-10-52-2.a, costs materials, equipment, and facilities for use in research and development activities may be capitalized if they have an alternative future use, including different research projects. "...the depreciation of such equipment or facilities used in those activities are research and development costs."

13,500 = (100,000 [cost] - 10,000 [residual | salvage value] ) ÷ 10 [useful life] x 1.5 [years]

For simplicity, this example assumes the item was acquired at the half way point of the project.

As outlined in 730-10-25-1, both research and development costs are expensed as incurred.

As outlined in 730-10-25-2.c, unless an intangible asset purchased from others (such as a patent) does not have an alternative future use, it is expensed along with all other research and development costs.

However, if it does have an alternative use, it may be capitalized even if this alternative use is another research project.

Expensing is only mandatory if it is was acquired for a particular research and development project.

As XYZ planned to use patent #322 in additional projects, it capitalized it.

12/31/X3
Patent #323		6,000
	Cash, Payables, Etc.		6,000

Unlike IAS 38.66.c, ASC 350-30 does not explicitly mention registration fees and legal costs nor suggest they should be capitalized.

IAS 38.57 states "An intangible asset arising from development ... shall be recognised if..." implying that capitalization is mandatory. However, it also attaches such conditions to this command word that, in practice, capitalization is recommended, not mandatory.

Nevertheless, ASC 730-10-55-2.i does specify that legal work in connection with patent applications is not research and development.

Thus, legal work is not R&D, not covered by ASC 730-10 and so may be capitalized.

ASC 350-30-25-3 specifies, provided an intangible asset is specifically identifiable, does not have an indeterminate life, and is not inherent in a continuing business or related to an entity as a whole, it may be capitalized.

ASC 350-30-25-3 states: Costs of internally developing, maintaining, or restoring intangible assets that are not specifically identifiable, that have indeterminate lives, or that are inherent in a continuing business or nonprofit activity and related to an entity as a whole, shall be recognized as an expense when incurred.

As it outlines the requirements for expensing (not capitalizing), legal work may be recognized, not must be recognized.

To emphasize that this general guidance does not override the specific guidance for R&D, ASC 350-10-15-4 states: The guidance in the Intangibles—Goodwill and Other Topic does not change the accounting prescribed in the following locations in the Codification: a. Research and development costs under Subtopic 730-10 ...

However, as ASC 730-10-55-2.i specifically exempts legal work from the scope of ASC 730-10, it may be capitalized per ASC 350-30-25-3.

Acquired technology

6/30/X2, XYZ purchased an unpatented machine including blueprints, a production manual, a parts list, a list of part vendors and a patent covering product X, which the machine had been designed to produce. It paid 50,000 for this unpatented technology. While XYZ did not intend to sell product X, it did hope to use a updated version of the unpatented machine to produce parts for product #123.

At the time of its acquisition, XYZ was uncertain it would be able to adapt the unpatented machine's technology to produce the parts it needed. This would only become clear during the development of product #123, when it would test prototype parts in prototype products.

Nevertheless, XYZ went ahead with the acquisition because, if it were successful, it would not only lead to significant cost savings (compared to sourcing the parts from third party vendors) but also reduce the risk the technology associated with those parts would escape those third party vendors.

XYZ did not intend to actually use the machine it bought to manufacture parts.

Instead, it planned to use it as a starting point to produce several similar machines, which it would use.

As such, the unpatented machine would never be used in commercial production.

At the end of its useful life, after XYZ either succeeded in creating the similar machines or determined the technology could not be adapted, XYZ planned to scrap the unpatented machine, keeping its technology out of the hands of potential competitors.

Although the patent was too specific to cover the intended parts, and so was of no use to XYZ, XYZ did not intend to sell it so it could keep the technology it did cover out of the hands of potential competitors.

IFRS | US GAAP

30.6.X2
Unpatented technology (intangible asset)		30,000
Patent #324		20,000
	Payable: DEF		50,000

In evaluating the acquisition, XYZ first considered whether it should apply IAS 16 or IAS 38.

As the patent was clearly in the scope of IAS 38, XYZ focused on the machine and determined it would not be appropriate to apply IAS 16 so it applied IAS 38 to the machine as well.

As outlined in IAS 16.6, property, plant and equipment is "held for use in the production or supply of goods or services, for rental to others, or for administrative purposes."

As XYZ would never use the machine to produce, create, distribute or supply products, merchandise or services, rent to others or for administrative purposes, it could not classify it as PP&E.

IAS 38.8 states: "An intangible asset is an identifiable non-monetary asset without physical substance."

Obviously, the machine did not lack physical substance, so do not meet the definition of an intangible asset.

Nevertheless, as it would never be used in production, it could not be classified as PP&E either.

Rather than concluding the IASB may have been sloppy with its definitions, after further consideration, it concluded the machine was in fact a prototype and its physical form merely represented the vessel containing its economic substance: the know-how it represented.

For the sake or thoroughness, XYZ also considered IFRS 3 IE16 to IE 44 (examples of identifiable intangible assets) where it found (IFRS 3.IE 39) patented technology, computer software and mask works, unpatented technology, databases (including title plants) and trade secrets (such as secret formulas, processes, recipes).

Unfortunately, prototype machines did not make the list.

As outlined in IAS 38.4, if an asset has intangible and tangible elements, the entity uses judgement to assess which element is more significant.

While the paragraph uses software as an example, the same logic can be applied to the know-how represented by the machine versus the machine itself.

So, rather than confusing a glass with the water it contains, XYZ classified the machine (including all the associated documentation) as an intangible asset.

XYZ determined the unpatented technology's acquisition cost to be 30,000, useful life indefinite and residual 0.

As XYZ recognized both the unpatented technology and product patent by applying IAS 38, it also used the standard's measurement guidance.

As IAS 38.25 states: Normally, the price an entity pays to acquire separately an intangible asset will reflect expectations about the probability that the expected future economic benefits embodied in the asset will flow to the entity ..., XYZ recognized the 50,000 purchase price without any adjustments.

Unfortunately, IAS 38.25 to 32 only address separate acquisition. They do not specify how to allocate the price an entity pays to acquire a bundle of assets to the constituent assets in that bundle.

Given that IAS 38 does not provide any specific guidance on allocating cost, XYZ could have applied IAS 8.12 and referred to ASC 805-50-30-3 (edited) which states: ... The cost of a group of assets acquired in an asset acquisition shall be allocated to the individual assets acquired or liabilities assumed based on their relative fair values and shall not give rise to goodwill...

However, as it was possible to avoid going outside of IFRS by analogizing from related IFRS guidance, XYZ chose this approach instead.

Because it was more fun.

Fortunately, IAS 38.33 to 43 do address assets acquired in a business combination.

Obviously, purchasing a patent together with unpatented technology is not the same as acquiring a company.

However, the two are analogous: a single acquisition price must be allocated various constituent items.

The only practical differences, in an asset acquisition, no goodwill arises and liabilities are rarely assumed.

Note: IFRS 3.3 addresses recognizing an asset acquisition versus a business combination and IFRS 3.B7 distinguishing the two.

As IAS 38.35 states: If an intangible asset acquired in a business combination is separable or arises from contractual or other legal rights, sufficient information exists to measure reliably the fair value of the asset..., XYZ allocated the 50,000 purchase price to the unpatented technology and product patent on the basis of their relative fair values.

To do so, it first applied fair value guidance in IFRS 13.

Since there is no reference market for either unpatented technology or product patents and since the cost to internally replicate unpatented technology and product patents is, for the most part, uncorrelated with their economic value, of the three valuation techniques outlined in IFRS 13.62, XYZ selected the income approach.

As the income associated with the unpatented technology would be derivative (it would be used to produce other machines, which would be used to produce parts, which would be used to produce products, which would be sold to generate revenue), XYZ decided to focus its attention on the patent.

To estimate the "exit price at the measurement date from the perspective of a market participant" XYZ used "...unobservable inputs [reflecting] the assumptions that market participants would use when pricing the asset or liability, including assumptions about risk" (IFRS 13.87, edited).

Specifically, it considered the stand-alone, net selling price of the products the patent covered discounted to present value using an appropriate discount rate.

Fortunately for XYZ, this estimate (20,000) had been provided by DEF during the purchase negotiation.

As IFRS 13.89 (edited) states: an entity need not undertake exhaustive efforts to obtain information about market participant assumptions, XYZ decided the seller's estimate was sufficiently reliable for allocation purposes.

Finally, rather than attempting to determine the derivative value of unpatented technology, it applied IFRS 15 guidance by analogy.

As allocating the purchase price of a group of assets to constituent assets is analogous to allocating a transaction price to individual performance obligations without clearly determinable stand-alone selling prices, XYZ used a residual approach like the one outlined in IFRS 15.79.c (it simply subtracted 20,000 from 50,000).

When XYZ acquired the unpatented technology, it had no practical way of determining its useful life.

If the technology were adaptable, its life would be (at minimum) equal to the useful life of the production line. If the technology were even more adaptable (could be used in subsequent production lines), it would be longer, perhaps indefinite.

On the other hand, if the unpatented technology proved unadaptable, it would have no useful life.

Thus, after considering the many factors outlined in IAS 38.90, it decided (primarily on the basis of factor h), to initially recognize the technology with an indefinite useful life and revisit this decision as part of the review process outlined in IAS 38.109 and 110.

Obviously, if an asset has an indefinite life, it is pointless to estimate its residual value.

However, as XYZ planned to reevaluate useful life soon, it decided that (as there was no commitment by any third party to purchase the unpatented technology and no active market as outlined in IAS 38.100.a and b) the unpatented technology could not ever have any residual value.

As outlined in IAS 38.21, an intangible asset may be recognized if (a) it will probably bring future economic benefits and (b) its cost can be measured reliably.

As outlined in IAS 38.12 it must also be identifiable and, as outlined in IAS 38.13 to 16, controlled by the entity (the entity has the power to obtain the future economic benefits flowing from the underlying resource and to restrict the access of others to those benefits).

As outlined in IAS 38.17, the future economic benefits may include revenue, cost savings, or other benefits.

As outlined in IAS 38.26, a cost is reliably measurable it the item is purchased, especially if purchased for cash.

In evaluating patent #324, XYZ considered it would bring the economic benefit of preventing others from using the patented technology.

Note: while IAS 38 does address "defensive intangible assets", they are discussed in IFRS 3.B43. Although IFRS 3 provides guidance on intangible assets acquired in a business combination, the same logic may, by analogy, be applied to all intangible asset.

Considering this benefit, XYZ decided to recognize the patent as an asset and amortize it over its remaining legal life.

Note: since the patent was not used to develop the product #123, this amortisation was not recognized (IAS 38.66.d) in its development.

To determine the value of the patent, XYZ considered the "exit price at the measurement date from the perspective of a market participant" XYZ used "...unobservable inputs [reflecting] the assumptions that market participants would use when pricing the asset or liability, including assumptions about risk" (IFRS 13.87, edited).

Specifically, it considered the stand-alone, net selling price of the products the patent covered discounted to present value using an appropriate discount rate.

Fortunately for XYZ, this estimate (20,000) had been provided by DEF during the purchase negotiation.

6/30/X2
Research and development (expense)		30,000
Patent #324		20,000
	Payable: DEF		50,000

As outlined in 730-10-25-1, all R&D costs are expensed as incurred.

As outlined in ASC 730-10-25-2.a and ASC 730-10-55-1.f, these costs include both equipment purchased from others (unless it has an alternative use) and the design, construction, and testing of preproduction prototypes and models.

Note: while it was theoretically possible to argue the new machines designed on the basis of the unpatented technology would be useful in additional projects besides the manufacture of product #123, first and foremost they would need to be useful in the particular project, otherwise they would have no additional, future use.

Consequently, rather than attempt to interpret the guidance creatively, XYZ expensed the cost of the unpatented machine as it incurred it.

As stated in 350-30-25-5 (edited, emphasis added): A defensive intangible asset, other than an intangible asset that is used in research and development activities, shall be accounted for as a separate unit of accounting. Such a defensive intangible asset shall not be included as part of the cost of an entity's existing intangible asset(s)...

As the patent was for a different product than the one XYZ was developing, it was not used in the R&D effort, so XYZ recognized this defensive patent as a stand-alone item (separate unit of accounting).

As outlined in ASC 350-30-30-1, both intangible assets acquired in groups and individually are accounted for as outlined in ASC 805-50-15-3 and ASC 805-50-30-1 to 4.

As ASC 805-50-15-3 simply stipulates an acquisition of a group of assets should not be treated as a business combination, XYZ applied ASC 805-50-30-3 which states (edited) ...The cost of a group of assets ... shall be allocated to the individual assets acquired or liabilities assumed based on their relative fair values...

To determine these fair values, it referred to ASC 820.

Specifically, it considered the stand-alone, net selling price of the products the patent covered discounted to present value using an appropriate discount rate.

Fortunately for XYZ, this estimate (20,000) had been provided by DEF during the purchase negotiation.

As ASC 820-10-35-54A (edited) states: a reporting entity need not undertake exhaustive efforts to obtain information about market participant assumptions, XYZ decided the seller's estimate was sufficiently reliable for allocation purposes.

Finally, rather than attempting to determine the derivative value of unpatented technology, it applied ASC 606 guidance by analogy.

As allocating the purchase price of a bundle of assets to constituent assets is analogous to allocating a transaction price to individual performance obligations without clearly determinable stand-alone selling prices, XYZ used a residual approach like the one outlined in ASC 606-10-32-34.c (it simply subtracted 20,000 from 50,000).

Specifically, it considered the stand-alone, net selling price of the products the patent covered discounted to present value using an appropriate discount rate.

Fortunately for XYZ, this estimate (20,000) had been provided by DEF during the purchase negotiation.

As ASC 820-10-35-54A (edited) states: an entity need not undertake exhaustive efforts to obtain information about market participant assumptions, XYZ decided the seller's estimate was sufficiently reliable for allocation purposes.

During Q3.X3, it created and tested a prototype of a new machine developed using the unpatented technology (machine plus documentation) at a cost of 30,000. It then concluded it would be feasible to use this new machine to manufacture parts for product #123 (but only product #123). During Q4.X3, it spent 50,000 creating two of the new machines (#456 and #457). At the end of X3, it scrapped the unpatented machine (keeping the documentation). The scrapping cost was immaterial.

The associated costs were included in Development and design (product) and are not illustrated here.

IFRS | US GAAP

30.9.X3 to 31.12.X3
Acquisition in progress: Production line #123		80,000
	Unpatented technology		30,000
	Cash, payables, employee benefits, etc.		50,000

As stated in IAS 16.9: This Standard does not prescribe the unit of measure for recognition.

As XYZ planned to acquire, use and dispose of the production line as a single unit, it decided the production line would be the unit of measure for recognition.

For simplicity, the cost 30,000 cost incurred during Q3 is included in Q4.

IFRS does not specifically address the accounting for an intangible asset used up to create another asset.

Nevertheless, IAS 38.112.b does specify an intangible asset is derecognized when "when no future economic benefits are expected from its use or disposal."

Also, IAS 16.16.b and IAS 16.22 specify that acquisition costs include "costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management" ... and "...the cost of a self-constructed asset is determined using the same principles as for an acquired asset."

Considering this guidance XYZ concluded, as the unpatented technology served as the basis for constructing machines which would become components of the asset being self-constructed (production line), it was directly attributable to bringing the production line to the condition where it would be capable of operating as intended by management.

XYZ also concluded once the unpatented technology served its purpose, it would have no future economic benefits.

On the basis of these conclusions, XYZ capitalized the cost associated with the derecognition of the unpatented technology as part of the production line.

Same facts, except XYZ concluded it would be feasible to use the machines in subsequent production lines.

30.9.X3 to 31.12.X3
Machine: #456 (PP&E)		40,000
Machine: #457 (PP&E)		40,000
	Intangible assets: Unpatented technology		30,000
	Cash, payables, employee benefits, etc.		50,000

As stated in IAS 16.9: This Standard does not prescribe the unit of measure for recognition.

As XYZ planned to use the machines in additional production lines, it considered each to be a separate unit of measure for recognition.

Same facts except, XYZ concluded it would not be feasible to construct its own machines to manufacture the parts.

30.9.X3
Development (expense)		30,000
	Intangible assets: Unpatented technology		30,000

Once the unpatented technology failed to help produce a usable asset, no future economic benefits [were] expected from its use or disposal (IAS 38.112.b).

First, XYZ considered derecognized the item against an impairment loss.

Although the unpatented technology was not a cash-generating unit, applying IAS 37 would have been (as outlined in IAS 37.108) appropriate, because XYZ had recognized it with an indefinite useful life.

However, XYZ decided against this approach since it had acquired the technology to see if it could use the associated knowledge in the production line being developed.

As a result, XYZ concluded it could be considered a cost of testing an alternative for a new manufacturing process as outlined in IAS 38.59.d, even if the test revealed the alternative was unsuitable.

9/30/X3 to 12/31/X3
Acquisition in progress: Production line #123		50,000
	Cash, payables, employee benefits, etc.		50,000

Unlike IAS 16.9, ASC 360-10-25 does not specify does not prescribe the unit of measure for recognition, ie what constitutes an item of property, plant and equipment (a.k.a. unit of account or unit of accounting). Instead, it simply not specify it.

While it does mention a unit of accounting in the context of impairment (ASC 360-10-15-4) this guidance does not preclude recognizing a composite item, such as a production line, as s single asset (unit of account).

As XYZ planned to acquire, use and dispose of the production line as a single unit, it decided the production line would be the unit of account for recognition, measurement (including subsequent measurement) and reporting purposes.

Same facts, except XYZ concluded it would be feasible to use the machines in subsequent production lines.

9/30/X3 to 12/31/X3
Machine: #456		25,000
Machine: #457		25,000
	Cash, payables, employee benefits, etc.		50,000

Unlike IAS 16, ASC 360-10-25 does not specify that it does not specify a unit of accounting, it just does not specify one.

A unit of accounting is only mentioned in ASC 360-10-15-4 which, however, addresses impairment.

As XYZ planned to use the machines in subsequent production lines, it considered each a separate unit of accounting.

Same facts except, XYZ concluded it would not be feasible to construct its own machines to manufacture the parts.

N/A

As ASC 730 does not allow any development costs to be capitalized, there was no asset to derecognize.

XYZ did consider whether it would be appropriate to reclassify the expense because (unlike IFRS 38.59.d), ASC 370-10-55-1 does not specifically mention the testing of alternatives.

It concluded it was not because (as outlined in ASC 370-10-55-1.j) development includes the design and development of components of a product or process.

Thus, the acquisition, testing and disposal of unpatented technology, even though it was not used, did aid it in the development of the process (the production line).

Development and design (production line)

1/1/X4 to 3/31/X4, XYZ performed the design and engineering work related to the production line. This task included creating blueprints, writing construction, usage, training and repair manuals, and compiling a parts and parts vendor list and cost 50,000.

XYZ also incurred costs of 25,000 producing some of the tools, jigs, molds, and dies it had designed earlier.

Next, paid 19,000 to various contractors to physically prepare the production line's site for installation and incurred a cost of 6,000 gaining construction and zoning permits.

During site preparation, a contractor suggested redesigning a portion of the line to aid product flow-through. XYZ did this at a cost of 10,000.

Dr/Cr

1/1/X4 3/31/X4 \| 1.1.X1 to 31.3.X4
Acquisition in progress: Production line #123 (PP&E)		110,000
	Cash, payables, employee benefits, etc.		110,000

IAS 38.59.d stipulates that (emphasis added) the design, construction and testing of a chosen alternative for new or improved materials, devices, products, processes, systems or services are development activities.

As the production line represented a manufacturing process, XYZ could have applied the guidance in IAS 38.

However, as the production line would finally be recognised as PP&E, it decided to primarily apply IAS 16, in that it would refer to IAS 38 if or as needed.

For its part, ASC 730-10-55-2.h stipulates that activity, including design and construction engineering, related to the construction, relocation, rearrangement, or start-up of facilities or equipment (other than pilot plats and items with no alternative use) is not R&D.

Applying this guidance, since it was not required to expense these costs, XYZ capitalized them.

As the production line would finally be recognised as PP&E, it decided to primarily apply ASC 360, in that it would refer to ASC 350-30 if or as needed.

XYZ calculated capitalizable development costs:

Finalizing the design		50,000
Manufacturing machine tools, jigs and dies		25,000
Site preparation		19,000
Zoning and construction permits		6,000
Redesign		10,000
Capitalizable development costs		110,000

To evaluate these costs, as it was developing a manufacturing process, XYZ decided to primarily apply IAS 16.16 to 22 (it skipped 22A, as no bearer plants were involved). Nevertheless, since some development was also going on, XYZ noted IAS 38 (specifically 57 to 67) was also applicable. Consequently, it decided it should refer to IAS 38 where appropriate.

In applying IAS 16.17, XYZ noticed design and engineering did not make the list of directly attributable costs. Nevertheless, it noted without that these costs the production line could not have been constructed and that "design, construction and testing of a chosen alternative for new or improved materials, devices, products, processes, systems or services" was mentioned in IAS 38.59.d.

Consequently, it capitalised these costs.

While considerably less detailed than IAS 16, ASC 360-10-30-1 provides comparable guidance in that "the costs necessarily incurred to bring it to the condition and location necessary for its intended use" are capitalized.

ASC 360's glossary discusses these necessary activities, which include physical construction, administrative and technical activities (such as developing plans or obtaining permits) as well as other activities needed to overcome unforeseen obstacles such as technical problems, labor disputes, or litigation.

Consequently, these costs are similarly capitalizable under US GAAP.

Same facts except the redesign was not performed to improve the original, but to correct a flaw in that design.

1.1.X1 to 31.3.X4
Acquisition in progress: Production line #123		100,000
Miscellaneous expenses		10,000
	Cash, payables, employee benefits, etc.		110,000

As stated in IAS 16.22: ... the cost of abnormal amounts of wasted material, labor, or other resources incurred in self-constructing an asset is not included in the cost of the asset.

As this redesign involved fixing an error that would not have occurred had the manager in charge been more diligent, XYZ determined it to be abnormal, and excluded it from the production line.

Besides disallowing its capitalization, IAS 16 does not specify how to recognize abnormal wastage. As it was caused by management error, XYZ recognized it in administrative expenses. If the amount had been material, XYZ would have presented it as a separate line item.

While ASC 360-10-30 does not discuss abnormal wastage, it is discussed in ASC 330-10-30-7. Since, as a general rule, the accounting for PP&E acquisition is derived from the accounting for inventory acquisition, the result of applying US GAAP's guidance to this issue would be comparable to IFRS guidance.

Acquisition, delivery, installation and break-in

4/1/X4 to 3/31/X5, XYZ spent 2,500,000 acquiring the pieces and parts comprising production line #123 and another 200,000 on delivery, 600,000 on installation and 700,000 on break-in.

The guidance provided by IFRS and US GAAP on the recognition and measurement of costs directly associated with self-constructed assets is generally comparable.

As a result, as implied by this illustration, most costs would be accounted for in the same way under both standards.

While some significant differences do exist, they are presented in other illustrations elsewhere in this section.

Obviously, straight-line costs are unrealistic, but this assumption does make this illustration more readable.

IAS 16.9 specifies that it does not specify a unit of measure for recognition (a.k.a. unit of account).

While the paragraph does suggest parts like moulds, tools and dies be aggregated (presumably into a single machine tool), it also states "judgement is required in applying the recognition criteria to an entity’s specific circumstances."

As XYZ planned to acquire the production line as a whole, use it as a whole and dispose of it as a whole, it applied its judgment to classify production line #123 as the unit of account.

In contrast, had XYZ planned to utilize the separate machines and pieces of equipment in other production lines, it would have recognized those items as their own, separate units of account.

Note: if the useful life of one or more of the separate machines or pieces of equipment had been shorter than the production line's, XYZ would have depreciated it separately (treated it as a component) as outlined in IAS 16.43.

Unlike IAS 16, ASC 360-10-25 fails specify that it does not specify a unit of account.

However, as with IFRS, had XYZ intended to utilize the separate machines and pieces of equipment in other production lines, it would have recognized them as separate units of account.

Note: the ASC does mention a "unit of accounting" in ASC 360-10-15-4, but this is the context of asset impairment (disposal) and refers to the asset (disposal) group.

Also note: unlike IAS 16.43, ASC 360-10-35 neither requires nor prohibits component accounting.

Dr/Cr

In Q2.X4
Acquisition in progress: Production line # 123 (pieces and parts)		558,163
Acquisition in progress: Production line # 123 (delivery)		44,653
Acquisition in progress: Production line # 123 (installation)		133,959
Acquisition in progress: Production line # 123 (break-in)		156,286
	Cash, Payables, Accruals, etc.		893,061

As outlined in IAS 16.16.a, the purchase price (including non-refundable taxes and fees / excluding discounts and rebates) of an item of PP&E is capitalized.

While ASC 360-10-30-1 fails to specifically mention purchase price, it is obvious this cost would be capitalized for US GAAP purposes as well.

As outlined in IAS 16.16.b and ASC 360-10-30-1, the cost(s) of bringing an asset to the location where it will be useful to the enterprise is capitalized.

This general guidance is reinforced in IAS 16.17.c, which includes initial delivery and handling among directly attributable costs.

Note: instead of attributable costs, ASC 360-10-30-2 discusses activities.

While delivery is not specifically mentioned, without it an asset could not be brought to where it will be useful to the enterprise.

XYZ applied this guidance by recognizing the cost of delivery regardless of whether the delivery was provided by the vendor, a shipper or performed by its own employees.

When a vendor delivers an item, the cost of delivery is, implicitly or explicitly, included in the purchase price.

When a sipper delivers an item, the cost of delivery is invoiced.

When a company will-calls an item, the cost of delivery must be determined.

As the measurement of self-constructed PP&E derives from the measurement of inventory, full absorption costing, recognizing both direct (material and labor) and indirect (fixed and variable overhead) costs, should be used.

As stated in IAS 16.22 (edited): The cost of a self-constructed asset is determined using the same principles as for an acquired asset. If an entity makes similar assets for sale in the normal course of business, the cost of the asset is usually the same as the cost of constructing an asset for sale (see IAS 2)...

While ASC 360-10-30 does not include a similarly explicit reference to ASC 330, ASC 360-10-30-2 does stipulate (paraphrased): the activities necessary to bring an asset to the condition and location necessary for its intended use encompass the physical construction of the asset and all the steps required to prepare the asset for its intended use.

As bringing an item of inventory to its existing condition and location (ASC 330-10-30-1) is comparable to bringing an item of PP&E to the condition and location necessary for its intended use (ASC 360-10-30-2), the guidance for inventory is just as applicable to self-manufactured PP&E under US GAAP as it is to self-constructed PP&E under IFRS.

While it would be possible to specifically allocate delivery costs to each separately acquired item, reclassifying previously recognized delivery expenses is simpler and should yield comparable results.

Please refer to Inventory / Job costing for a more detailed illustration of specific cost allocation.

It is also consistent with IFRS guidance.

Specifically, the "Work performed by the entity and capitalised" line item (IAS 1.IG6) refers to costs that had, originally, been recognized as expenses, but were later reclassified as self-constructed assets.

The XBRL documentation for OtherWorkPerformedByEntityAndCapitalised states (emphasis added): The amount of the entity's own work capitalised from items originally classified as costs that the entity does not separately disclose in the same statement or note.

This documentation is somewhat ambiguous because costs can be either capitalized (recognized as assets) or expensed.

However, if a cost is presented in P&L, it had to have been classified as an expense, since only income and expenses, not assets or liabilities, are comprise profit or loss.

This implies that the description should be interpreted to mean: Work performed by entity and capitalised comprises those costs that had has originally be recognized as expenses but were related to the self-constructed assets and so re-classified as reductions in expenses and increases in assets.

This is interpretation is confirmed by OtherWorkPerformedByEntityAndCapitalised, which has a credit balance but is excluded from revenue.

While this procedure is only consistent with IFRS (IAS 1.102 and IAS 1.104) guidance, it could be used in an US GAAP context provided that adequate adjustments, reclassifying expenses to self-constructed assets, were made.

Whenever XYZ delivers products to a customer, standard delivery expenses break down: 50 wages, 30 fuel, 5 repairs and maintenance and 15 depreciation per hour.

Please refer to Inventory / Standard costing for a more detailed illustration of standard cost allocation.

As it spent 500 hours will-calling parts for production line #123, XYZ recognized:

Acquisition in progress: Production line # 123 (delivery)		44,653
	Delivery expenses: Labor		22,327
	Delivery expenses: Fuel		13,396
	Delivery expenses: MRO		2,233
	Delivery expenses: Depreciation, Rent		6,698

While, theoretically, all leases are financial leases, when the lease term is less than one year, they need not be recognized as financial leases. In this situation, common practice is to recognize a Rent expense.

As outlined in IAS 16.16.b and ASC 360-10-30-1, the cost(s) of bringing an asset to the condition where it will be useful to the enterprise is capitalized.

This general guidance is reinforced in IAS 16.17.b and d, which include site preparation, installation and assembly among directly attributable costs.

Note: instead of attributable costs, ASC 360-10-30-2 discusses activities.

While construction is mentioned instead of installation, without installation an asset could not be brought to the condition where it will be useful to the enterprise.

XYZ applied this guidance to all of the costs incurred during installation.

When a company self-constructs an asset, the cost of installing that asset must be determined.

As bringing an item of inventory to its existing condition and location (ASC 330-10-30-1) is comparable to bringing an item of PP&E to the condition and location necessary for its intended use (ASC 360-10-30-2), the guidance for inventory is just as applicable to self-manufactured PP&E under US GAAP as it is to self-constructed PP&E under IFRS.

While it would theoretically be possible to reclassify production costs to the self-constructed asset, it is unlikely that this would yield satisfactory results.

The approach illustrated above, for delivery expenses.

Products are generally uniform, each unit requiring approximately the same amount of material, parts, labor, processing, etc. as the next.

In contrast, self-constructed assets are unique so it is unlikely a simply reallocation would yield satisfactory results even if it may, theoretically, be consistent with IFRS guidance.

This documentation is somewhat ambiguous because costs can be either capitalized (recognized as assets) or expensed.

However, if a cost is presented in P&L, it had to have been classified as an expense, since only income and expenses, not assets or liabilities, are comprise profit or loss.

This is interpretation is confirmed by OtherWorkPerformedByEntityAndCapitalised, which has a credit balance but is excluded from revenue.

Note: while the above guidance could theoretically be used to justify a simply re-allocation under IFRS, this would not be possible under US GAAP because US GAAP requires expenses to always be classified by function, co and no "Work performed by the entity and capitalised" item can exist.

In summary:

Acquisition in progress: Production line # 123 (installation)		133,959
	Cash, Payables (e.g. vendors), Accruals (e.g. payroll), etc.		66,980
	Cash, Payables (e.g. parts suppliers), Inventory (e.g. material), etc.		40,188
	Cash, Payables, Accruals (e.g. utilities), etc.		6,698
	Accumulated depreciation, Accumulated amortization, Rent, etc.		20,094

When a vendor provides installation related services, provided they bring the asset to the condition necessary for its intended use (IAS 16.16.b | ASC 360-10-30-1 and 2), these costs are capitalized.

Note: with respect to third party services, IAS 16.17.f only specifically mentions professional fees. Nevertheless, this does not preclude capitalizing non-professional fees provided they are related to the installation and assembly costs mentioned in IAS 16.17.d.

Instead of directly attributable costs, ASC 360-10-30-2 focuses on activities.

These comprise the physical construction of the asset, pre-construction technical and administrative activities (e.g. developing plans or obtaining permits) and activities after construction has begun such as overcoming unforeseen obstacles (e.g. technical problems, labor disputes or litigation).

Consequently, costs associated with installing an asset are be capitalized, including fees charged by third parties, professional or otherwise.

Please see Inventory / Job costing for a more detailed illustration of this approach.

As outlined in IAS 16.16.b and ASC 360-10-30-1, the cost(s) of bringing an asset to the condition where it will be useful to the enterprise is capitalized.

This general guidance is reinforced in IAS 16.17.e, which includes testing whether the asset is functioning properly among directly attributable costs.

Note: instead of attributable costs, ASC 360-10-30-2 discusses activities.

While testing is not specifically mentioned, without it an asset could probably not be brought to the condition where it will be useful to the enterprise.

XYZ applied this guidance to all of the costs incurred during break-in.

When a company self-constructs an asset, the cost of breaking in that asset must be determined.

As bringing an item of inventory to its existing condition and location (ASC 330-10-30-1) is comparable to bringing an item of PP&E to the condition and location necessary for its intended use (ASC 360-10-30-2), the guidance for inventory is just as applicable to self-manufactured PP&E under US GAAP as it is to self-constructed PP&E under IFRS.

While it would theoretically be possible to reclassify production costs to the self-constructed asset, it is unlikely that this would yield satisfactory results.

The approach illustrated above, for delivery expenses.

Products are generally uniform, each unit requiring approximately the same amount of material, parts, labor, processing, etc. as the next.

In contrast, self-constructed assets are unique so it is unlikely a simply reallocation would yield satisfactory results even if it may, theoretically, be consistent with IFRS guidance.

This documentation is somewhat ambiguous because costs can be either capitalized (recognized as assets) or expensed.

However, if a cost is presented in P&L, it had to have been classified as an expense, since only income and expenses, not assets or liabilities, are comprise profit or loss.

This is interpretation is confirmed by OtherWorkPerformedByEntityAndCapitalised, which has a credit balance but is excluded from revenue.

In summary:

Acquisition in progress: Production line # 123 (break-in)		156,286
	Cash, Payables (e.g. vendors), Accruals (e.g. payroll), etc.		78,143
	Cash, Payables (e.g. parts suppliers), Inventory (e.g. material), etc.		46,886
	Cash, Payables, Accruals (e.g. utilities), etc.		7,814
	Accumulated depreciation, Accumulated amortization, Rent, etc.		23,443

When a vendor provides break-in related services, provided they bring the asset to the condition necessary for its intended use (IAS 16.16.b | ASC 360-10-30-1 and 2), these costs are capitalized.

Instead of directly attributable costs, ASC 360-10-30-2 focuses on activities.

Consequently, costs associated with breaking in an asset are be capitalized, including fees charged by third parties, professional or otherwise.

Please see Inventory / Job costing for a more detailed illustration of this approach.

In addition to incurring costs to break-in the production line, XYZ also produced and sold some test samples.

In 2020, the IASB felt the need to specify (IAS 16.20A) that income earned / costs incurred from selling items produced while bringing PP&E to the condition necessary for it to be capable of operating in the manner intended by management are recognized as revenue / cost of sales according to the applicable standards (IFRS 15 / IAS 2).

While ASC 360-10-30 does not include a comparable, specific requirement, the approach outlined here would be consistent with the guidance it does provide.

The samples cost 9,000 to produce and were sold for 15,000.

Cash, Receivables		15,000
Cost of sales (wages)		6,000
Cost of sales (parts and material)		2,000
Cost of sales (variable overhead)		1,000
	Revenue		15,000
	Cash, Wages payable		6,000
	Cash, Inventory		2,000
	Cash, Accruals		1,000

XYZ did not allocate any depreciation since production line #123 was still being constructed.

4/1/X4 to 3/31/X5 \| 1.4.X4 to 31.3.X5
Acquisition in progress: Production line # 123 (pieces and parts)		2,500,000
Acquisition in progress: Production line # 123 (delivery)		200,000
Acquisition in progress: Production line # 123 (installation)		600,000
Acquisition in progress: Production line # 123 (break-in)		700,000
	Cash, Payables, Accruals, etc.		4,000,000

Capitalized borrowing costs | interest

3/31/X5, the project manager performed a final inspection and determined production line #123 was physically fit, and could start operating. However, XYZ actually began producing products on the production line on 7/1/X5. To determine capitalizable borrowing costs | interest, XYZ applied a 5% annual capitalization rate.

In practice, XYZ would have recognized borrowing costs | interest during the production line's construction.

This illustration recognizes these costs at the end simply to be more readable.

As outlined in IAS 23.22 | ASC 835-20-25-5, capitalisation ceases when the asset is ready for its intended use.

As stated in ASC 835-20-25-6 (edited): ... interest is not to be capitalized during periods when the entity intentionally defers or suspends activities related to the asset. Interest cost incurred during such periods is a holding cost, not an acquisition cost...

While IAS 23 does not provide similarly detailed guidance, in practice it is interpreted in the same way, so XYZ ceased capitalising interest on 3/31/X5 even though it began depreciating the production line on 7/1/X5.

IAS 16.55 (edited) states: Depreciation of an asset begins when it is available for use, ie when it is in the location and condition necessary for it to be capable of operating in the manner intended by management.

This guidance implies that XYZ should have begun depreciating production line #123 on 4/1/X5, the first day it was capable of operating.

However, as IAS 16 does not provide guidance on partial year depreciation, if XYZ's policy had been to recognize ½ year depreciation in the year of acquisition (fairly common practice), it would have begun depreciating at the beginning of Q3.

For its part, 360-10-35-4 does not specify when depreciation should begin, only that it should be "spread over the expected useful life of the facility in such a way as to allocate it as equitably as possible to the periods during which services are obtained from the use of the facility."

This guidance suggests XYZ could have begun depreciating production line #123 on 7/1/X5, even if its policy had been to recognize partial year depreciation by month of acquisition.

Note: as production line # 123 was not completed in stages, capitalisation only ceased when it was completed in its entirety (IAS 23.24 and ASC 835-20-25-5.b).

IAS 23 | ASC 835-20-15 requires borrowing costs | interest to be included in the cost of self-constructed assets.

While IAS 23 discusses borrowing costs (interest and other costs that an entity incurs in connection with the borrowing of funds), ASC 835-20 refers to interest (which is does not define).

From a semantic perspective, borrowing costs is undeniably the more accurate term.

From a practical perspective, it makes no difference as the two are synonyms.

While the guidance is more detailed, in general, if construction takes longer than a year, capitalisation is required.

IAS 23 discusses qualifying assets, which it defines as assets which take a substantial period of time to get ready for its intended use or sale.

IAS 23.7 also specifies (a) inventories, (b) manufacturing plants, (c) power generation facilities, (d) intangible assets, (e) investment properties and (f) bearer plants can all be qualifying assets depending on the circumstances. While it does not state what those circumstances are, the definition suggests that time is the criteria that distinguish a qualifying from a non-qualifying asset. This is further reinforced by IAS 23.7 as it specifies that neither financial assets nor inventories manufactured or produced over a short period can be qualifying assets.

Like IAS 23.7, ASC 835-20-15-3 specifies that interest cost is capitalizable for all assets that require considerable time to get ready for their intended use.

ASC 835-20-15-5 likewise gives similar, if simpler, guidance requiring interest capitalization for self-constructed assets (assets that are constructed or otherwise produced for an entity's own use), projects (for example, ships or real estate developments) and when applying the equity method (if the investee capitalizes interest).

Finely, ASC 835-20-15-6 also excludes inventory. However, rather excluding financial assets in general, if focuses on equity method investments and investments in regulated investees.

Note: "the investor's investment in the investee, not the individual assets or projects of the investee, is the qualifying asset for purposes of interest capitalization" (ASC 835-20-15-5.c) while "investments accounted for by the equity method after the planned principal operations of the investee begin ..." (ASC 835-20-15-6.d) are not.

If it takes less than a year but more than a quarter, and the asset is expensive, capitalisation is required.

ASC 835-20-15-3 (edited, emphasis added) states: Interest capitalization is required only when the balance of the informational benefit and the cost of implementation is favorable. A favorable balance is most likely to be achieved where an asset is constructed or produced as a discrete project for which costs are separately accumulated and where construction of the asset takes considerable time, entails substantial expenditures, and is likely to involve a significant amount of interest cost.

While 23 does not specifically mention substantial expenditures, IAS 8.8 does specify that the policies set out in IFRSs (e.g. IAS 23) need not be applied if the effect of applying them is immaterial (provided the goal is not achieve a particular presentation of an entity’s financial position, financial performance or cash flows).

This implies, if the asset being self-constructed is not expensive, the borrowing costs would be immaterial so not capitalizing them would not be a material departure from the requirements of IAS 23.

The same logic would apply if the asset only took a short time to complete.

Otherwise, borrowing costs | interest is not capitalized.

A supplemental illustration detailing capitalized borrowing costs | interest is presented at the end of this page.

Note: while IAS 23 and ASC 835-20 provide comparable guidance for the borrowing costs | interest, two separate examples are presented because the costs included in production line #123 under IFRS and US GAAP differ (see above).

IFRS | US GAAP

3/31/X5 \| 31.03.X5
Production line #123		107,497
	Interest expense		107,497

To determine the capitalised borrowing costs, XYZ applied the 5% annual capitalisation rate to the average accumulated expenditures in each quarter.

IAS 23.14 (edited, emphasis added) states: to the extent that an entity borrows funds generally and uses them for the purpose of obtaining a qualifying asset, the entity shall determine the amount of borrowing costs eligible for capitalisation by applying a capitalisation rate to the expenditures on that asset...

Specific borrowings are discussed elsewhere on this page.

In contrast, ASC 835-20-30-3 (edited, emphasis added) states: the amount capitalized in an accounting period shall be determined by applying the capitalization rate to the average amount of accumulated expenditures for the asset during the period...

After considering this guidance, XYZ determined 1. applying a capitalization rate to an average amount of accumulated expenditures was far easier than applying it to the expenditures and 2. the difference was immaterial.

XYZ's day-to-day expenditures on production line #123 were:

Period	Expenditures	Accumulated exp.	Discount rate	Interest
10/1/23	165.17	165.17	0.013%	0.02
10/2/23	1,646.52	1,811.69	0.013%	0.24
10/3/23	154.85	1,966.54	0.013%	0.26
10/4/23	189.26	2,155.79	0.013%	0.29
10/5/23	492.06	2,647.86	0.013%	0.35
10/6/23	1,304.14	3,952.00	0.013%	0.53
10/7/23	392.27	4,344.27	0.013%	0.58
10/8/23	1,274.89	5,619.17	0.013%	0.75
10/9/23	457.65	6,076.82	0.013%	0.81
10/10/23	242.59	6,319.41	0.013%	0.84
10/11/23	923.91	7,243.32	0.013%	0.97
10/12/23	1,711.90	8,955.22	0.013%	1.20
10/13/23	775.95	9,731.17	0.013%	1.30
10/14/23	309.69	10,040.86	0.013%	1.34
10/15/23	32.69	10,073.55	0.013%	1.35
10/16/23	1,319.63	11,393.18	0.013%	1.52
10/17/23	806.92	12,200.10	0.013%	1.63
10/18/23	591.85	12,791.95	0.013%	1.71
10/19/23	1,118.33	13,910.28	0.013%	1.86
10/20/23	669.28	14,579.55	0.013%	1.95
10/21/23	1,362.64	15,942.19	0.013%	2.13
10/22/23	1,319.63	17,261.82	0.013%	2.31
10/23/23	292.49	17,554.30	0.013%	2.35
10/24/23	1,030.58	18,584.89	0.013%	2.48
10/25/23	1,056.39	19,641.28	0.013%	2.63
10/26/23	860.25	20,501.53	0.013%	2.74
10/27/23	1,720.50	22,222.03	0.013%	2.97
10/28/23	144.52	22,366.55	0.013%	2.99
10/29/23	295.93	22,662.48	0.013%	3.03
10/30/23	1,235.32	23,897.80	0.013%	3.19
10/31/23	578.09	24,475.89	0.013%	3.27
11/1/23	953.16	25,429.05	0.013%	3.40
11/2/23	1,269.73	26,698.78	0.013%	3.57
11/3/23	1,362.64	28,061.42	0.013%	3.75
11/4/23	58.50	28,119.92	0.013%	3.76
11/5/23	627.98	28,747.90	0.013%	3.84
11/6/23	1,228.44	29,976.34	0.013%	4.01
11/7/23	533.36	30,509.70	0.013%	4.08
11/8/23	1,169.94	31,679.64	0.013%	4.23
11/9/23	1,359.20	33,038.84	0.013%	4.42
11/10/23	987.57	34,026.41	0.013%	4.55
11/11/23	209.90	34,236.31	0.013%	4.58
11/12/23	1,202.63	35,438.94	0.013%	4.74
11/13/23	1,194.03	36,632.97	0.013%	4.90
11/14/23	134.20	36,767.17	0.013%	4.92
11/15/23	1,030.58	37,797.76	0.013%	5.05
11/16/23	1,412.53	39,210.29	0.013%	5.24
11/17/23	1,715.34	40,925.63	0.013%	5.47
11/18/23	1,610.39	42,536.02	0.013%	5.69
11/19/23	858.53	43,394.56	0.013%	5.80
11/20/23	92.91	43,487.46	0.013%	5.81
11/21/23	1,407.37	44,894.84	0.013%	6.00
11/22/23	32.69	44,927.53	0.013%	6.01
11/23/23	270.12	45,197.64	0.013%	6.04
11/24/23	633.15	45,830.79	0.013%	6.13
11/25/23	266.68	46,097.47	0.013%	6.16
11/26/23	1,574.26	47,671.73	0.013%	6.37
11/27/23	1,171.66	48,843.39	0.013%	6.53
11/28/23	1,495.12	50,338.51	0.013%	6.73
11/29/23	683.04	51,021.55	0.013%	6.82
11/30/23	1,471.03	52,492.58	0.013%	7.02
12/1/23	1,204.35	53,696.94	0.013%	7.18
12/2/23	230.55	53,927.48	0.013%	7.21
12/3/23	1,388.45	55,315.93	0.013%	7.39
12/4/23	399.16	55,715.09	0.013%	7.45
12/5/23	913.59	56,628.67	0.013%	7.57
12/6/23	1,672.33	58,301.00	0.013%	7.79
12/7/23	1,046.07	59,347.07	0.013%	7.93
12/8/23	1,188.87	60,535.94	0.013%	8.09
12/9/23	392.27	60,928.21	0.013%	8.14
12/10/23	335.50	61,263.71	0.013%	8.19
12/11/23	889.50	62,153.21	0.013%	8.31
12/12/23	462.82	62,616.03	0.013%	8.37
12/13/23	364.75	62,980.78	0.013%	8.42
12/14/23	203.02	63,183.80	0.013%	8.45
12/15/23	760.46	63,944.26	0.013%	8.55
12/16/23	1,469.31	65,413.57	0.013%	8.74
12/17/23	418.08	65,831.65	0.013%	8.80
12/18/23	251.19	66,082.84	0.013%	8.83
12/19/23	1,433.18	67,516.02	0.013%	9.03
12/20/23	1,551.89	69,067.92	0.013%	9.23
12/21/23	1,219.84	70,287.76	0.013%	9.40
12/22/23	767.34	71,055.10	0.013%	9.50
12/23/23	760.46	71,815.56	0.013%	9.60
12/24/23	1,643.08	73,458.65	0.013%	9.82
12/25/23	634.87	74,093.51	0.013%	9.90
12/26/23	1,648.24	75,741.76	0.013%	10.13
12/27/23	765.62	76,507.38	0.013%	10.23
12/28/23	861.97	77,369.35	0.013%	10.34
12/29/23	652.07	78,021.42	0.013%	10.43
12/30/23	321.73	78,343.16	0.013%	10.47
12/31/23	1,656.85	80,000.00	0.013%	10.69
1/1/24	2,185.41	82,185.42	0.013%	10.99
1/2/24	1,419.42	83,604.84	0.013%	11.18
1/3/24	866.33	84,471.17	0.013%	11.29
1/4/24	2,156.05	86,627.22	0.013%	11.58
1/5/24	751.31	87,378.53	0.013%	11.68
1/6/24	420.93	87,799.46	0.013%	11.74
1/7/24	1,071.91	88,871.37	0.013%	11.88
1/8/24	117.47	88,988.83	0.013%	11.90
1/9/24	665.66	89,654.49	0.013%	11.99
1/10/24	690.13	90,344.62	0.013%	12.08
1/11/24	1,404.73	91,749.36	0.013%	12.27
1/12/24	900.60	92,649.95	0.013%	12.39
1/13/24	1,862.37	94,512.33	0.013%	12.63
1/14/24	124.81	94,637.14	0.013%	12.65
1/15/24	394.01	95,031.15	0.013%	12.70
1/16/24	631.40	95,662.55	0.013%	12.79
1/17/24	2,109.55	97,772.10	0.013%	13.07
1/18/24	873.68	98,645.77	0.013%	13.19
1/19/24	773.34	99,419.11	0.013%	13.29
1/20/24	1,216.29	100,635.40	0.013%	13.45
1/21/24	70.97	100,706.37	0.013%	13.46
1/22/24	1,226.08	101,932.46	0.013%	13.63
1/23/24	58.73	101,991.19	0.013%	13.63
1/24/24	1,950.48	103,941.67	0.013%	13.89
1/25/24	1,265.24	105,206.91	0.013%	14.06
1/26/24	1,556.47	106,763.37	0.013%	14.27
1/27/24	1,279.92	108,043.30	0.013%	14.44
1/28/24	2,202.55	110,245.84	0.013%	14.74
1/29/24	1,010.72	111,256.57	0.013%	14.87
1/30/24	327.93	111,584.50	0.013%	14.92
1/31/24	303.46	111,887.96	0.013%	14.96
2/1/24	2,011.66	113,899.62	0.013%	15.23
2/2/24	398.91	114,298.53	0.013%	15.28
2/3/24	1,960.27	116,258.79	0.013%	15.54
2/4/24	1,752.25	118,011.04	0.013%	15.78
2/5/24	425.83	118,436.86	0.013%	15.83
2/6/24	327.93	118,764.80	0.013%	15.88
2/7/24	587.35	119,352.14	0.013%	15.96
2/8/24	166.41	119,518.56	0.013%	15.98
2/9/24	1,137.98	120,656.54	0.013%	16.13
2/10/24	1,945.58	122,602.12	0.013%	16.39
2/11/24	215.36	122,817.48	0.013%	16.42
2/12/24	1,321.53	124,139.01	0.013%	16.59
2/13/24	1,399.84	125,538.85	0.013%	16.78
2/14/24	2,138.92	127,677.76	0.013%	17.07
2/15/24	560.43	128,238.19	0.013%	17.14
2/16/24	1,160.01	129,398.20	0.013%	17.30
2/17/24	1,808.53	131,206.73	0.013%	17.54
2/18/24	526.16	131,732.89	0.013%	17.61
2/19/24	102.79	131,835.68	0.013%	17.62
2/20/24	1,678.83	133,514.51	0.013%	17.85
2/21/24	677.89	134,192.40	0.013%	17.94
2/22/24	396.46	134,588.86	0.013%	17.99
2/23/24	1,328.87	135,917.73	0.013%	18.17
2/24/24	2,442.38	138,360.11	0.013%	18.50
2/25/24	1,673.93	140,034.04	0.013%	18.72
2/26/24	281.44	140,315.48	0.013%	18.76
2/27/24	1,779.17	142,094.65	0.013%	19.00
2/28/24	1,752.25	143,846.89	0.013%	19.23
2/29/24	1,801.19	145,648.08	0.013%	19.47
3/1/24	464.98	146,113.07	0.013%	19.53
3/2/24	2,317.57	148,430.63	0.013%	19.84
3/3/24	1,700.85	150,131.49	0.013%	20.07
3/4/24	2,089.97	152,221.46	0.013%	20.35
3/5/24	261.86	152,483.32	0.013%	20.38
3/6/24	1,189.37	153,672.69	0.013%	20.54
3/7/24	1,358.24	155,030.93	0.013%	20.72
3/8/24	1,456.13	156,487.05	0.013%	20.92
3/9/24	51.39	156,538.45	0.013%	20.93
3/10/24	1,661.70	158,200.14	0.013%	21.15
3/11/24	2,349.38	160,549.53	0.013%	21.46
3/12/24	1,906.43	162,455.95	0.013%	21.72
3/13/24	349.96	162,805.91	0.013%	21.76
3/14/24	1,336.21	164,142.12	0.013%	21.94
3/15/24	2,165.84	166,307.96	0.013%	22.23
3/16/24	1,130.64	167,438.60	0.013%	22.38
3/17/24	1,098.83	168,537.42	0.013%	22.53
3/18/24	1,304.40	169,841.82	0.013%	22.70
3/19/24	2,378.75	172,220.57	0.013%	23.02
3/20/24	2,376.30	174,596.87	0.013%	23.34
3/21/24	53.84	174,650.71	0.013%	23.35
3/22/24	2,417.91	177,068.61	0.013%	23.67
3/23/24	1,355.79	178,424.40	0.013%	23.85
3/24/24	2,148.71	180,573.11	0.013%	24.14
3/25/24	2,109.55	182,682.66	0.013%	24.42
3/26/24	609.37	183,292.03	0.013%	24.50
3/27/24	1,426.76	184,718.79	0.013%	24.69
3/28/24	1,458.57	186,177.36	0.013%	24.89
3/29/24	1,502.63	187,679.99	0.013%	25.09
3/30/24	22.03	187,702.01	0.013%	25.09
3/31/24	2,297.99	190,000.00	0.013%	25.40
4/1/24	22,216.12	212,216.12	0.013%	28.37
4/2/24	515.61	212,731.73	0.013%	28.44
4/3/24	10,088.05	222,819.78	0.013%	29.79
4/4/24	16,320.22	239,140.00	0.013%	31.97
4/5/24	7,106.47	246,246.46	0.013%	32.92
4/6/24	3,497.19	249,743.65	0.013%	33.39
4/7/24	6,904.71	256,648.36	0.013%	34.31
4/8/24	291.43	256,939.79	0.013%	34.35
4/9/24	201.76	257,141.55	0.013%	34.37
4/10/24	3,452.35	260,593.91	0.013%	34.84
4/11/24	12,015.98	272,609.89	0.013%	36.44
4/12/24	15,042.40	287,652.29	0.013%	38.45
4/13/24	15,154.49	302,806.78	0.013%	40.48
4/14/24	5,425.13	308,231.90	0.013%	41.20
4/15/24	11,948.73	320,180.63	0.013%	42.80
4/16/24	3,609.28	323,789.91	0.013%	43.28
4/17/24	3,721.37	327,511.28	0.013%	43.78
4/18/24	4,931.93	332,443.21	0.013%	44.44
4/19/24	17,665.29	350,108.50	0.013%	46.80
4/20/24	4,169.73	354,278.23	0.013%	47.36
4/21/24	21,678.09	375,956.32	0.013%	50.26
4/22/24	14,056.01	390,012.33	0.013%	52.14
4/23/24	9,191.33	399,203.66	0.013%	53.37
4/24/24	5,447.54	404,651.21	0.013%	54.09
4/25/24	15,019.98	419,671.19	0.013%	56.10
4/26/24	11,096.85	430,768.04	0.013%	57.59
4/27/24	17,373.86	448,141.90	0.013%	59.91
4/28/24	4,954.35	453,096.25	0.013%	60.57
4/29/24	7,689.33	460,785.58	0.013%	61.60
4/30/24	2,936.74	463,722.32	0.013%	61.99
5/1/24	4,618.08	468,340.41	0.013%	62.61
5/2/24	17,216.93	485,557.34	0.013%	64.91
5/3/24	3,205.76	488,763.10	0.013%	65.34
5/4/24	2,241.79	491,004.88	0.013%	65.64
5/5/24	3,317.85	494,322.73	0.013%	66.08
5/6/24	3,564.44	497,887.17	0.013%	66.56
5/7/24	8,944.73	506,831.91	0.013%	67.75
5/8/24	8,092.85	514,924.76	0.013%	68.84
5/9/24	1,300.24	516,225.00	0.013%	69.01
5/10/24	7,622.08	523,847.08	0.013%	70.03
5/11/24	8,810.23	532,657.31	0.013%	71.21
5/12/24	627.70	533,285.01	0.013%	71.29
5/13/24	7,039.21	540,324.22	0.013%	72.23
5/14/24	807.04	541,131.26	0.013%	72.34
5/15/24	21,364.24	562,495.50	0.013%	75.19
5/16/24	8,720.56	571,216.06	0.013%	76.36
5/17/24	17,508.36	588,724.42	0.013%	78.70
5/18/24	20,579.61	609,304.04	0.013%	81.45
5/19/24	12,621.27	621,925.31	0.013%	83.14
5/20/24	15,378.67	637,303.97	0.013%	85.20
5/21/24	1,232.98	638,536.96	0.013%	85.36
5/22/24	560.45	639,097.40	0.013%	85.43
5/23/24	17,732.54	656,829.95	0.013%	87.81
5/24/24	20,960.72	677,790.66	0.013%	90.61
5/25/24	16,678.90	694,469.57	0.013%	92.84
5/26/24	14,369.86	708,839.43	0.013%	94.76
5/27/24	16,409.89	725,249.32	0.013%	96.95
5/28/24	5,918.32	731,167.64	0.013%	97.74
5/29/24	20,377.85	751,545.49	0.013%	100.47
5/30/24	12,217.74	763,763.24	0.013%	102.10
5/31/24	13,876.67	777,639.90	0.013%	103.96
6/1/24	4,505.99	782,145.90	0.013%	104.56
6/2/24	9,281.00	791,426.90	0.013%	105.80
6/3/24	5,537.22	796,964.12	0.013%	106.54
6/4/24	1,591.67	798,555.79	0.013%	106.75
6/5/24	15,244.16	813,799.94	0.013%	108.79
6/6/24	20,220.93	834,020.87	0.013%	111.49
6/7/24	538.03	834,558.90	0.013%	111.56
6/8/24	12,329.83	846,888.74	0.013%	113.21
6/9/24	11,208.94	858,097.68	0.013%	114.71
6/10/24	16,275.38	874,373.06	0.013%	116.89
6/11/24	20,019.17	894,392.23	0.013%	119.56
6/12/24	6,546.02	900,938.25	0.013%	120.44
6/13/24	20,243.35	921,181.59	0.013%	123.14
6/14/24	8,518.79	929,700.39	0.013%	124.28
6/15/24	8,361.87	938,062.26	0.013%	125.40
6/16/24	9,841.45	947,903.71	0.013%	126.72
6/17/24	21,453.91	969,357.62	0.013%	129.58
6/18/24	8,339.45	977,697.07	0.013%	130.70
6/19/24	8,137.69	985,834.76	0.013%	131.79
6/20/24	18,382.66	1,004,217.42	0.013%	134.24
6/21/24	4,416.32	1,008,633.74	0.013%	134.83
6/22/24	2,174.53	1,010,808.28	0.013%	135.13
6/23/24	19,144.87	1,029,953.15	0.013%	137.68
6/24/24	1,972.77	1,031,925.92	0.013%	137.95
6/25/24	4,887.10	1,036,813.02	0.013%	138.60
6/26/24	15,288.99	1,052,102.01	0.013%	140.65
6/27/24	7,487.57	1,059,589.59	0.013%	141.65
6/28/24	7,509.99	1,067,099.58	0.013%	142.65
6/29/24	8,877.48	1,075,977.06	0.013%	143.84
6/30/24	7,084.05	1,083,061.11	0.013%	144.78
7/1/24	12,598.85	1,095,659.96	0.013%	146.47
7/2/24	19,593.23	1,115,253.18	0.013%	149.09
7/3/24	9,393.09	1,124,646.28	0.013%	150.34
7/4/24	9,953.54	1,134,599.81	0.013%	151.67
7/5/24	11,186.52	1,145,786.34	0.013%	153.17
7/6/24	21,835.02	1,167,621.35	0.013%	156.09
7/7/24	16,544.40	1,184,165.75	0.013%	158.30
7/8/24	5,447.54	1,189,613.29	0.013%	159.03
7/9/24	16,499.56	1,206,112.85	0.013%	161.23
7/10/24	3,048.83	1,209,161.69	0.013%	161.64
7/11/24	19,256.96	1,228,418.64	0.013%	164.22
7/12/24	21,610.84	1,250,029.48	0.013%	167.10
7/13/24	17,553.20	1,267,582.68	0.013%	169.45
7/14/24	20,714.12	1,288,296.80	0.013%	172.22
7/15/24	21,162.48	1,309,459.28	0.013%	175.05
7/16/24	12,150.49	1,321,609.77	0.013%	176.67
7/17/24	19,862.24	1,341,472.02	0.013%	179.33
7/18/24	10,200.14	1,351,672.15	0.013%	180.69
7/19/24	12,083.24	1,363,755.39	0.013%	182.31
7/20/24	17,373.86	1,381,129.25	0.013%	184.63
7/21/24	1,210.57	1,382,339.81	0.013%	184.79
7/22/24	896.72	1,383,236.53	0.013%	184.91
7/23/24	16,275.38	1,399,511.91	0.013%	187.09
7/24/24	17,822.21	1,417,334.12	0.013%	189.47
7/25/24	3,542.03	1,420,876.15	0.013%	189.94
7/26/24	3,048.83	1,423,924.98	0.013%	190.35
7/27/24	19,907.08	1,443,832.06	0.013%	193.01
7/28/24	16,387.47	1,460,219.53	0.013%	195.20
7/29/24	16,813.41	1,477,032.94	0.013%	197.45
7/30/24	2,578.06	1,479,611.00	0.013%	197.80
7/31/24	5,178.53	1,484,789.53	0.013%	198.49
8/1/24	5,335.46	1,490,124.98	0.013%	199.20
8/2/24	9,684.52	1,499,809.51	0.013%	200.50
8/3/24	493.19	1,500,302.70	0.013%	200.56
8/4/24	22,193.70	1,522,496.40	0.013%	203.53
8/5/24	19,907.08	1,542,403.48	0.013%	206.19
8/6/24	8,429.12	1,550,832.60	0.013%	207.32
8/7/24	17,127.26	1,567,959.86	0.013%	209.61
8/8/24	15,961.53	1,583,921.39	0.013%	211.74
8/9/24	11,971.15	1,595,892.54	0.013%	213.34
8/10/24	10,513.99	1,606,406.53	0.013%	214.75
8/11/24	19,660.48	1,626,067.01	0.013%	217.37
8/12/24	1,143.31	1,627,210.32	0.013%	217.53
8/13/24	6,142.50	1,633,352.82	0.013%	218.35
8/14/24	19,884.66	1,653,237.48	0.013%	221.01
8/15/24	9,527.60	1,662,765.08	0.013%	222.28
8/16/24	963.97	1,663,729.05	0.013%	222.41
8/17/24	13,204.13	1,676,933.18	0.013%	224.17
8/18/24	21,879.85	1,698,813.03	0.013%	227.10
8/19/24	21,027.97	1,719,841.00	0.013%	229.91
8/20/24	21,790.18	1,741,631.18	0.013%	232.82
8/21/24	1,636.51	1,743,267.69	0.013%	233.04
8/22/24	2,936.74	1,746,204.43	0.013%	233.43
8/23/24	17,687.71	1,763,892.14	0.013%	235.80
8/24/24	15,490.76	1,779,382.89	0.013%	237.87
8/25/24	1,210.57	1,780,593.46	0.013%	238.03
8/26/24	2,712.56	1,783,306.02	0.013%	238.39
8/27/24	8,451.54	1,791,757.56	0.013%	239.52
8/28/24	4,281.82	1,796,039.38	0.013%	240.10
8/29/24	15,176.91	1,811,216.28	0.013%	242.12
8/30/24	9,101.66	1,820,317.94	0.013%	243.34
8/31/24	224.18	1,820,542.12	0.013%	243.37
9/1/24	20,422.69	1,840,964.81	0.013%	246.10
9/2/24	8,249.78	1,849,214.59	0.013%	247.20
9/3/24	15,513.17	1,864,727.76	0.013%	249.28
9/4/24	2,017.61	1,866,745.37	0.013%	249.55
9/5/24	20,422.69	1,887,168.06	0.013%	252.28
9/6/24	13,002.37	1,900,170.43	0.013%	254.02
9/7/24	22,305.79	1,922,476.22	0.013%	257.00
9/8/24	14,123.26	1,936,599.49	0.013%	258.89
9/9/24	19,839.82	1,956,439.31	0.013%	261.54
9/10/24	12,890.28	1,969,329.59	0.013%	263.26
9/11/24	10,312.23	1,979,641.82	0.013%	264.64
9/12/24	6,254.59	1,985,896.41	0.013%	265.48
9/13/24	13,540.40	1,999,436.81	0.013%	267.29
9/14/24	21,745.34	2,021,182.15	0.013%	270.19
9/15/24	17,575.62	2,038,757.77	0.013%	272.54
9/16/24	19,324.21	2,058,081.98	0.013%	275.13
9/17/24	8,070.44	2,066,152.42	0.013%	276.20
9/18/24	20,041.59	2,086,194.01	0.013%	278.88
9/19/24	2,734.98	2,088,928.99	0.013%	279.25
9/20/24	18,696.51	2,107,625.50	0.013%	281.75
9/21/24	4,550.83	2,112,176.33	0.013%	282.36
9/22/24	4,012.80	2,116,189.13	0.013%	282.89
9/23/24	3,654.11	2,119,843.24	0.013%	283.38
9/24/24	10,850.25	2,130,693.50	0.013%	284.83
9/25/24	1,210.57	2,131,904.06	0.013%	284.99
9/26/24	21,947.11	2,153,851.17	0.013%	287.93
9/27/24	10,536.40	2,164,387.57	0.013%	289.34
9/28/24	5,671.72	2,170,059.30	0.013%	290.09
9/29/24	2,555.64	2,172,614.94	0.013%	290.44
9/30/24	20,265.76	2,192,880.70	0.013%	293.15
10/1/24	20,153.67	2,213,034.37	0.013%	295.84
10/2/24	15,423.50	2,228,457.88	0.013%	297.90
10/3/24	18,113.65	2,246,571.52	0.013%	300.32
10/4/24	44.84	2,246,616.36	0.013%	300.33
10/5/24	9,146.50	2,255,762.85	0.013%	301.55
10/6/24	8,227.36	2,263,990.22	0.013%	302.65
10/7/24	3,788.62	2,267,778.84	0.013%	303.16
10/8/24	6,366.68	2,274,145.52	0.013%	304.01
10/9/24	13,607.65	2,287,753.17	0.013%	305.83
10/10/24	9,639.69	2,297,392.86	0.013%	307.12
10/11/24	2,712.56	2,300,105.42	0.013%	307.48
10/12/24	18,248.15	2,318,353.58	0.013%	309.92
10/13/24	14,078.43	2,332,432.01	0.013%	311.80
10/14/24	10,446.73	2,342,878.74	0.013%	313.20
10/15/24	10,939.93	2,353,818.66	0.013%	314.66
10/16/24	919.13	2,354,737.80	0.013%	314.78
10/17/24	17,194.51	2,371,932.31	0.013%	317.08
10/18/24	11,365.87	2,383,298.18	0.013%	318.60
10/19/24	10,043.21	2,393,341.39	0.013%	319.94
10/20/24	3,228.17	2,396,569.56	0.013%	320.37
10/21/24	9,213.75	2,405,783.31	0.013%	321.61
10/22/24	15,849.44	2,421,632.75	0.013%	323.73
10/23/24	21,117.64	2,442,750.40	0.013%	326.55
10/24/24	1,569.25	2,444,319.65	0.013%	326.76
10/25/24	5,828.65	2,450,148.30	0.013%	327.54
10/26/24	3,474.77	2,453,623.07	0.013%	328.00
10/27/24	7,622.08	2,461,245.15	0.013%	329.02
10/28/24	17,015.17	2,478,260.32	0.013%	331.30
10/29/24	17,082.42	2,495,342.74	0.013%	333.58
10/30/24	12,060.82	2,507,403.56	0.013%	335.19
10/31/24	3,586.86	2,510,990.42	0.013%	335.67
11/1/24	16,230.55	2,527,220.97	0.013%	337.84
11/2/24	18,943.11	2,546,164.08	0.013%	340.37
11/3/24	12,105.66	2,558,269.73	0.013%	341.99
11/4/24	15,647.68	2,573,917.41	0.013%	344.08
11/5/24	13,248.97	2,587,166.38	0.013%	345.85
11/6/24	11,702.13	2,598,868.51	0.013%	347.42
11/7/24	1,255.40	2,600,123.92	0.013%	347.59
11/8/24	15,983.95	2,616,107.86	0.013%	349.72
11/9/24	12,935.12	2,629,042.98	0.013%	351.45
11/10/24	7,016.80	2,636,059.78	0.013%	352.39
11/11/24	13,092.04	2,649,151.82	0.013%	354.14
11/12/24	2,645.31	2,651,797.13	0.013%	354.49
11/13/24	7,173.72	2,658,970.85	0.013%	355.45
11/14/24	7,442.74	2,666,413.59	0.013%	356.45
11/15/24	7,980.77	2,674,394.35	0.013%	357.51
11/16/24	11,455.54	2,685,849.89	0.013%	359.05
11/17/24	11,702.13	2,697,552.02	0.013%	360.61
11/18/24	1,389.91	2,698,941.93	0.013%	360.80
11/19/24	4,416.32	2,703,358.26	0.013%	361.39
11/20/24	22,059.19	2,725,417.45	0.013%	364.34
11/21/24	16,342.63	2,741,760.09	0.013%	366.52
11/22/24	19,391.47	2,761,151.55	0.013%	369.11
11/23/24	17,553.20	2,778,704.75	0.013%	371.46
11/24/24	14,369.86	2,793,074.61	0.013%	373.38
11/25/24	16,320.22	2,809,394.83	0.013%	375.56
11/26/24	10,289.81	2,819,684.64	0.013%	376.94
11/27/24	18,270.57	2,837,955.21	0.013%	379.38
11/28/24	14,257.77	2,852,212.98	0.013%	381.29
11/29/24	15,132.07	2,867,345.05	0.013%	383.31
11/30/24	5,425.13	2,872,770.18	0.013%	384.03
12/1/24	17,754.96	2,890,525.14	0.013%	386.41
12/2/24	1,345.07	2,891,870.21	0.013%	386.59
12/3/24	2,017.61	2,893,887.82	0.013%	386.86
12/4/24	18,898.27	2,912,786.10	0.013%	389.38
12/5/24	20,871.05	2,933,657.14	0.013%	392.17
12/6/24	13,024.79	2,946,681.93	0.013%	393.91
12/7/24	10,939.93	2,957,621.86	0.013%	395.38
12/8/24	6,904.71	2,964,526.56	0.013%	396.30
12/9/24	20,960.72	2,985,487.28	0.013%	399.10
12/10/24	3,497.19	2,988,984.47	0.013%	399.57
12/11/24	156.93	2,989,141.40	0.013%	399.59
12/12/24	9,393.09	2,998,534.49	0.013%	400.85
12/13/24	3,295.43	3,001,829.92	0.013%	401.29
12/14/24	5,514.80	3,007,344.72	0.013%	402.02
12/15/24	13,742.16	3,021,086.88	0.013%	403.86
12/16/24	7,285.81	3,028,372.69	0.013%	404.83
12/17/24	7,465.15	3,035,837.84	0.013%	405.83
12/18/24	2,241.79	3,038,079.63	0.013%	406.13
12/19/24	201.76	3,038,281.39	0.013%	406.16
12/20/24	5,895.90	3,044,177.29	0.013%	406.95
12/21/24	2,174.53	3,046,351.83	0.013%	407.24
12/22/24	5,469.96	3,051,821.79	0.013%	407.97
12/23/24	2,331.46	3,054,153.25	0.013%	408.28
12/24/24	17,530.78	3,071,684.03	0.013%	410.62
12/25/24	2,824.65	3,074,508.69	0.013%	411.00
12/26/24	1,838.27	3,076,346.95	0.013%	411.25
12/27/24	10,312.23	3,086,659.18	0.013%	412.63
12/28/24	6,613.27	3,093,272.45	0.013%	413.51
12/29/24	22,417.88	3,115,690.33	0.013%	416.51
12/30/24	2,084.86	3,117,775.19	0.013%	416.79
12/31/24	650.12	3,118,425.31	0.013%	416.87
1/1/25	14,011.18	3,132,436.49	0.013%	418.75
1/2/25	13,719.74	3,146,156.23	0.013%	420.58
1/3/25	16,970.34	3,163,126.57	0.013%	422.85
1/4/25	20,915.88	3,184,042.45	0.013%	425.64
1/5/25	1,614.09	3,185,656.54	0.013%	425.86
1/6/25	16,858.25	3,202,514.78	0.013%	428.11
1/7/25	13,540.40	3,216,055.18	0.013%	429.92
1/8/25	20,198.51	3,236,253.69	0.013%	432.62
1/9/25	13,293.80	3,249,547.50	0.013%	434.40
1/10/25	4,147.31	3,253,694.80	0.013%	434.96
1/11/25	14,526.79	3,268,221.59	0.013%	436.90
1/12/25	8,115.27	3,276,336.86	0.013%	437.98
1/13/25	10,693.33	3,287,030.19	0.013%	439.41
1/14/25	5,828.65	3,292,858.84	0.013%	440.19
1/15/25	1,972.77	3,294,831.61	0.013%	440.46
1/16/25	2,040.03	3,296,871.64	0.013%	440.73
1/17/25	10,132.88	3,307,004.52	0.013%	442.08
1/18/25	19,727.73	3,326,732.26	0.013%	444.72
1/19/25	7,420.32	3,334,152.58	0.013%	445.71
1/20/25	13,024.79	3,347,177.37	0.013%	447.45
1/21/25	20,871.05	3,368,048.41	0.013%	450.24
1/22/25	11,388.28	3,379,436.70	0.013%	451.77
1/23/25	14,997.56	3,394,434.26	0.013%	453.77
1/24/25	9,931.12	3,404,365.38	0.013%	455.10
1/25/25	4,550.83	3,408,916.21	0.013%	455.71
1/26/25	3,631.70	3,412,547.91	0.013%	456.19
1/27/25	12,240.16	3,424,788.07	0.013%	457.83
1/28/25	12,688.52	3,437,476.59	0.013%	459.52
1/29/25	17,822.21	3,455,298.80	0.013%	461.91
1/30/25	17,844.63	3,473,143.44	0.013%	464.29
1/31/25	12,800.61	3,485,944.05	0.013%	466.00
2/1/25	16,768.57	3,502,712.62	0.013%	468.24
2/2/25	22,283.37	3,524,995.99	0.013%	471.22
2/3/25	7,128.89	3,532,124.88	0.013%	472.18
2/4/25	22,171.28	3,554,296.16	0.013%	475.14
2/5/25	9,662.11	3,563,958.27	0.013%	476.43
2/6/25	14,100.85	3,578,059.12	0.013%	478.32
2/7/25	7,196.14	3,585,255.26	0.013%	479.28
2/8/25	6,142.50	3,591,397.76	0.013%	480.10
2/9/25	15,019.98	3,606,417.74	0.013%	482.11
2/10/25	4,640.50	3,611,058.24	0.013%	482.73
2/11/25	6,411.51	3,617,469.75	0.013%	483.59
2/12/25	7,554.83	3,625,024.58	0.013%	484.60
2/13/25	5,156.11	3,630,180.69	0.013%	485.28
2/14/25	20,220.93	3,650,401.62	0.013%	487.99
2/15/25	18,965.53	3,669,367.14	0.013%	490.52
2/16/25	17,553.20	3,686,920.34	0.013%	492.87
2/17/25	21,745.34	3,708,665.69	0.013%	495.78
2/18/25	16,768.57	3,725,434.26	0.013%	498.02
2/19/25	12,015.98	3,737,450.25	0.013%	499.62
2/20/25	11,903.89	3,749,354.14	0.013%	501.22
2/21/25	18,562.01	3,767,916.15	0.013%	503.70
2/22/25	13,742.16	3,781,658.31	0.013%	505.53
2/23/25	7,913.51	3,789,571.82	0.013%	506.59
2/24/25	12,397.09	3,801,968.91	0.013%	508.25
2/25/25	13,585.24	3,815,554.14	0.013%	510.07
2/26/25	12,060.82	3,827,614.96	0.013%	511.68
2/27/25	112.09	3,827,727.05	0.013%	511.69
2/28/25	15,042.40	3,842,769.45	0.013%	513.70
3/1/25	8,070.44	3,850,839.89	0.013%	514.78
3/2/25	5,425.13	3,856,265.01	0.013%	515.51
3/3/25	14,952.73	3,871,217.74	0.013%	517.51
3/4/25	3,407.52	3,874,625.26	0.013%	517.96
3/5/25	3,407.52	3,878,032.78	0.013%	518.42
3/6/25	10,984.76	3,889,017.54	0.013%	519.89
3/7/25	12,509.18	3,901,526.71	0.013%	521.56
3/8/25	20,108.84	3,921,635.55	0.013%	524.25
3/9/25	11,119.27	3,932,754.82	0.013%	525.73
3/10/25	2,129.70	3,934,884.52	0.013%	526.02
3/11/25	8,272.20	3,943,156.72	0.013%	527.12
3/12/25	20,400.27	3,963,556.99	0.013%	529.85
3/13/25	13,943.92	3,977,500.91	0.013%	531.71
3/14/25	3,743.79	3,981,244.70	0.013%	532.22
3/15/25	5,671.72	3,986,916.42	0.013%	532.97
3/16/25	19,032.78	4,005,949.20	0.013%	535.52
3/17/25	11,276.19	4,017,225.40	0.013%	537.03
3/18/25	20,198.51	4,037,423.91	0.013%	539.73
3/19/25	5,492.38	4,042,916.29	0.013%	540.46
3/20/25	19,346.63	4,062,262.92	0.013%	543.05
3/21/25	14,347.44	4,076,610.36	0.013%	544.96
3/22/25	1,165.73	4,077,776.09	0.013%	545.12
3/23/25	15,244.16	4,093,020.25	0.013%	547.16
3/24/25	13,585.24	4,106,605.49	0.013%	548.97
3/25/25	8,182.53	4,114,788.01	0.013%	550.07
3/26/25	8,563.63	4,123,351.64	0.013%	551.21
3/27/25	15,087.23	4,138,438.88	0.013%	553.23
3/28/25	11,791.81	4,150,230.68	0.013%	554.81
3/29/25	18,651.68	4,168,882.36	0.013%	557.30
3/30/25	8,025.60	4,176,907.96	0.013%	558.37
3/31/25	13,092.04	4,190,000.00	0.013%	560.12
	4,190,000.00			107,284.24

It was only 212.

Consequently, it decided on the former approach for cost / benefit reasons.

A	B	C	D	E	F	G
A = period B = accumulated cost at beginning of period C = cost incurred during period D = accumulated cost at end of period [B + C] E = average cost [(B + D) ÷ 2] G = quarterly discount rate [1.23% = (1 + 5%)^1÷4- 1] G = capitalized interest [E x F]
X3 Q4	0	80,000	80,000	40,000	1.23%	491
X4 Q1	80,000	110,000	190,000	135,000	1.23%	1,657
X4 Q2	190,000	893,061	1,083,061	636,531	1.23%	7,812
X4 Q3	1,083,061	1,109,820	2,192,881	1,637,971	1.23%	20,102
X4 Q4	2,192,881	925,545	3,118,425	2,655,653	1.23%	32,591
X5 Q1	3,118,425	1,071,575	4,190,000	3,654,213	1.23%	44,845
		4,190,000				107,497

For simplicity's sake, this example assumes XYZ expensed all borrowing costs as they were paid. To capitalize the amount related to the asset, it simply reversed that expense.

To further simplify the example, this was done in the period the asset was completed, instead of throughout its construction (as should be done in practice).

3/31/X5 \| 31.03.X5
Production line #123		105,472
	Interest expense		105,472

To determine capitalized interest, XYZ applied the 5% annual capitalization rate to the average accumulated expenditures in each quarter.

As outlined in ASC 835-20-30-3, the amount of interest capitalized is determined by applying the capitalization rate to the average costs incurred during a period (in this case, each quarter).

A	B	C	D	E	F	G
A = period B = accumulated cost at beginning of period C = cost incurred during period D = accumulated cost at end of period [B + C] E = average cost [(B + D) ÷ 2] G = quarterly discount rate [1.23% = (1 + 5%)^1÷4- 1] G = capitalized interest [E x F]
X3 Q4	0	50,000	50,000	25,000	1.23%	307
X4 Q1	50,000	110,000	160,000	105,000	1.23%	1,289
X4 Q2	160,000	893,061	1,053,061	606,531	1.23%	7,443
X4 Q3	1,053,061	1,109,820	2,162,881	1,607,971	1.23%	19,733
X4 Q4	2,162,881	925,545	3,088,425	2,625,653	1.23%	32,223
X5 Q1	3,088,425	1,071,575	4,160,000	3,624,213	1.23%	44,477
		4,160,000				105,472

For simplicity's sake, this example assumes XYZ expensed all interest as it was paid. To capitalize the amount related to the asset, it simply reversed that expense.

To further simplify the example, this was done in the period the asset was completed, instead of throughout its construction (as should be done in practice).

Removal costs and disposal obligations

3/31/X5, XYZ determined it had an obligation of 100,000 to dispose of the production line in an environment friendly manner. The risk-free rate was 2.13% and the risk premium that reflected XYZ's credit standing was 2.43%.

As outlined in IAS 16.16.c, costs of dismantling and removing the asset are estimated and capitalized if the entity incurs an obligation when the item is acquired.

In order for a liability to be recognized, an entity must have an obligation. The mere intent to remove and dismantle not enough.

Specifically, IAS 18.18 refers to IAS 37 and IAS 37.14 (edited) states: a provision shall be recognised when: (a) an entity has a present obligation (legal or constructive) ...

While XYZ may or may not have had legal obligation (depending on laws in the jurisdiction where the line was constructed), it had a constructive obligation, since the public expects companies to prevent and/or rectify any harm to the environment.

Note: companies that forget about their constructive obligations are generally reminded of them by the various activist organizations whose mission is to seek out and destroy such companies.

Also note: while US GAAP ASC 450 does not provide explicit guidance on constructive obligations, they are discussed in CON 8.E50 to E52. As the CON should be considered when applying explicit guidance, the procedures under US GAAP is comparable to IFRS.

IAS 16.16.c only applies if the obligation is incurred when the asset is acquired. If the obligation arises as the asset is being used, IAS 16.18 refers to IAS 2.

While this reference may seem somewhat cryptic, it simply means, like setup which can only be capitalized to an asset when it is acquired, restoration costs can only be capitalize at the beginning. It is unlikely such costs would arise with a production line. On the other hand, with a quarry, restoration cots arise as the ore is being mined, so cannot be capitalised to the quarry. Instead, they are recognised in inventory, as outlined in IAS 2.

Similarly, ASC 410-20-25-4 requires an asset retirement obligation to be recognized if a reasonable estimate of fair value can be made.

In order for a liability to be recognized, an entity must have an obligation. The mere intent to remove and dismantle not enough.

Specifically, ASC 410-20-25-4 refers to an asset retirement obligation defined as obligation associated with the retirement of a tangible long-lived asset.

To clarify that this obligation need not be the result of law or regulation, ASC 410-20-55-1 refers to the doctrine of promissory estoppel.

"The principle that a promise made without consideration may nonetheless be enforced to prevent injustice if the promisor should have reasonably expected the promisee to rely on the promise and if the promisee did actually rely on the promise to his or her detriment." (See Black's Law Dictionary, seventh edition.)

While XYZ may or may not have had legal obligation (depending on laws in the jurisdiction where the line was constructed), it had an obligation under this doctrine, since companies implicitly promise the public to prevent and/or rectify any harm to the environment and can reasonably expect the public to rely on the promise.

Note: companies that forget about their implicit promises are generally reminded of them by the various activist organizations whose mission is to seek out and destroy such companies.

IAS 16.16.c only applies if the obligation is incurred when the asset is acquired. If the obligation arises as the asset is being used, IAS 16.18 refers to IAS 2.

To determine the obligation, XYZ first estimated expected costs.

XYZ estimated risk-adjusted expenditures using both its historical experience and management judgment.

Estimated cost	Amount & probability	Estimate
Waste removal and disposal fees
Worst case scenario	55,000 x 25% =	16,025
Most likely scenario	40,000 x 50% =	25,000
Best case scenario	25,000 x 25% =	9,225
risk-adjusted estimate		40,000

Labor
Worst case scenario	50,000 x 35% =	15,000
Most likely scenario	40,000 x 40% =	16,000
Best case scenario	30,000 x 30% =	9,000
risk-adjusted estimate		40,000

Allocated overhead	40,000 x 50% =	20,000
		100,000

Note: while they suggest different routes, IFRS and US GAAP lead to the same destination.

As IAS 16.18 refers to IAS 37, before settling on a particular accounting policy, XYZ considered IAS 37.36 which states (edited): ... a provision shall be the best estimate of the expenditure required to settle the present obligation at the end of the reporting period.

It also considered IAS 37.37 which states (edited): The best estimate of the expenditure required to settle the present obligation is the amount that an entity would rationally pay to settle the obligation at the end of the reporting period or to transfer it to a third party at that time...

Since it did not want incur the cost of soliciting offers from, for example, disposal companies offering removal services or insurance companies willing to assume such obligations, it continued reading and learned ... It will often be impossible or prohibitively expensive to settle or transfer an obligation at the end of the reporting period...

Reading on, it also learned it could determine the outcome and financial effect by using managerial judgement, supplemented by its experience with similar transactions and, in some cases, reports from independent experts.

It also learned the uncertainties surrounding the amount to be recognised as a provision can be dealt with by various means according to the circumstances.

It also found useful tidbits of wisdom such as the provision will be different depending on whether the probability of a loss of a given amount is, for example, 60 per cent or 90 per cent.

After it finished reading, XYZ settled on an approach which involved estimating both future expenditures and associated risks (a.k.a. an expected present value technique).

ASC 410-20-30-1 (edited): an expected present value technique will usually be the only appropriate technique with which to estimate the fair value of a liability for an asset retirement obligation...

The first step in this technique is estimating risk-adjusted expenditures.

The next step, calculating present value, is shown in the illustration.

IFRS | US GAAP

IFRS: 3/31/X5 \| 31.3.X5
Production line #123		90,000
	Disposal provision		90,000

In contrast to ASC 410-20, IAS 16.16.c focuses on the asset, not the associated liability.

As a result, the accounting for the capitalised cost under IFRS is somewhat less flexible than under US GAAP.

For example, while IFRS does not allow the capitalised disposal cost to be expensed immediately, US GAAP does.

Also see the supplemental illustration below for a more detailed comparison of the IFRS and US GAAP.

90,000 = 100,000 ÷ (1 + 2.1296%)⁵

IAS 37.47 states (edited, emphasis added): The discount rate (or rates) shall be a pre-tax rate (or rates) that reflect(s) current market assessments of the time value of money and the risks specific to the liability...

In 2011, the IFRIC, while deciding to not take this issue to its addenda, noted that while the paragraph does not explicitly state whether or not own credit risk should be included in the discount rate, predominant practice was to exclude it (link: ifrs.org). If this link is broken, a copy can be accessed here.

Consequently, XYZ did not adjust the discount rate to reflect its credit standing.

In contrast to IFRS, US GAAP does provide explicit guidance, requiring a credit adjusted rate to be used.

The result, as this example illustrates, the liabilities recognized under US GAAP tend to be significantly lower than the liabilities recognized under IFRS.

Note: although the IFRIC merely cites "predominant practice" and notes that using a credit adjusted rate is not explicitly prohibited, most independent auditors will refuse to sign off on anything but, even though IAS 8.12 allows management to consider the most recent pronouncements of other standard-setting bodies that use a similar conceptual framework to develop accounting standards (like the FASB) while applying their judgement in developing accounting policy in situations where an IFRS does not specifically apply to a transaction, event or condition.

US GAAP: 3/31/X5 \| 31.3.X5
Production line #123		80,000
	Asset retirement obligation		80,000

In contrast to IAS 16.16.c, ASC 410-20 focuses on the liability, not the associated asset.

As a result, the accounting for the capitalised cost under US GAAP is somewhat more flexible than under IFRS.

For example, while US GAAP allows the capitalized disposal cost to be immediately expensed, IFRS does not.

Also see the supplemental illustration below for a more detailed comparison of the IFRS and US GAAP.

80,000 = 100,000 ÷ (1 + 4.5640%)⁵

As outlined in ASC 410-20-30-1, expected cash flows are discounted using a credit-adjusted discount rate (using a risk-free rate is not allowed).

In contrast, while it does not explicitly require a risk-free, IFRS strongly suggests that using a credit-adjusted discount rate is not appropriate.

The result, as this example illustrates, the liabilities recognized under IFRS tend to be significantly higher than the liabilities recognized under US GAAP.

Additional issues

Note: the differences between IFRS and US GAAP in the illustrations below are in addition to the ones presented above.

Professional services

During installation and break-in, XYZ paid ABC Development 15,000 for help overcoming an unforeseen technical problem integrating equipment into the production line. It also paid 20,000 to GHI Mediation for help resolving a labor dispute. Finally, it paid 30,000 to EFG Legal for successfully defending patent #323 and 50,000 for successfully resolving a dispute involving a competitor alleging that the line would infringe on its patents.

IFRS / US GAAP

During installation and break-in
Acquisition in progress: Production line #123		65,000
Administrative expenses: Professional services		50,000
	Payable: ABC		15,000
	Payable: GHI		20,000
	Payable: EFG		80,000

In contrast to ASC 360-10-30-2, which specifies that overcoming unforeseen obstacles (technical problems, labor disputes, or litigation) generates capitalizable costs, IAS 16.16 does not discuss overcoming obstacles.

However, if unforeseen obstacles are encountered, they must be overcome in order to bring the asset to the condition necessary for its intended use, which IAS 16.16.b does discuss.

Consequently, XYZ capitalize both the 15,000 paid to GHI and 50,000 paid to EFG.

Note: while not strictly necessary, XYZ's management could have (IAS 8.12) considered ASC 360-10-30-2 because it is the most recent pronouncement by a standard-setting body that uses a similar conceptual framework and (IAS 8.10) no IFRS specifically applies to overcoming unforeseen obstacles.

As the labor dispute involved the entire labor force, not just those employees assigned to production line #123, it was obvious these costs were not directly attributable to bringing production line #123 to the condition necessary for it to be capable of operating.

Consequently, XYZ expensed the 20,000 paid GHI.

In evaluating the cost of patent defense, XYZ considered IAS 38.20 which states (edited): ...most subsequent expenditures are likely to maintain the expected future economic benefits embodied in an existing intangible asset rather than meet the definition of an intangible asset and the recognition criteria in this Standard. In addition, it is often difficult to attribute subsequent expenditure directly to a particular intangible asset rather than to the business as a whole. Therefore, only rarely will subsequent expenditure—expenditure incurred after the initial recognition of an acquired intangible asset or after completion of an internally generated intangible asset—be recognised in the carrying amount of an asset...

While XYZ's management did notice that IAS 38.20 states "most subsequent expenditures" not all, it is "often difficult to attribute subsequent expenditure directly to a particular intangible asset" not if the asset is a particular patent and "only rarely will subsequent expenditure ... be recognised" rarely does not mean never, it is also considered the interpretation of IAS 38.20 popular among auditors (for example) and decided to expense the 30,000 paid to EFG instead of insisting on a correct interpretation of the guidance.

During installation and break-in
Acquisition in progress: Production line #123		85,000
Patent #323		30,000
	Payable: ABC		15,000
	Payable: GHI		20,000
	Payable: EFG		80,000

Traditionally, the cost of a successful patent defense has been capitalized.

Unfortunately, the guidance on this issue, the AICPA's Technical Q&A Section 2260.03, is nonauthoritative.

ASC 105-10-05-3 outlines nonauthoritative guidance, mentioning AICPA Technical Practice Aids.

Note: the AICPA's web site only presents recently issued technical questions and answers (link: aicpa.org).

A copy of the Q&A (as of June 1, 2011) can be found at the University of Mississippi (link: olemiss.edu).

In case this link is ever broken, a copy of this copy can be found (link: here).

While this is not in and of itself a problem, Con 6, which served as the basis for section 2260.03, was superseded by CON 8 Chapter 4, which no longer discusses costs of a legal defense, successful or otherwise.

ASC 105-10-05-2 states (edited, emphasis added): If the guidance for a transaction or event is not specified within a source of authoritative GAAP for that entity, an entity shall first consider accounting principles for similar transactions or events within a source of authoritative GAAP for that entity and then consider nonauthoritative guidance from other sources...

This means that the justification for capitalization outlined in section 2260.03 no longer exists.

Nevertheless, is obvious that if a patent is successfully defended, the rights inherent in that patent are enhanced, so the value of that patent increases.

It is also fortunate that ASC 350-30-25-3 states (emphasis added): Costs of internally developing, maintaining, or restoring intangible assets that are not specifically identifiable, that have indeterminate lives, or that are inherent in a continuing business or nonprofit activity and related to an entity as a whole, shall be recognized as an expense when incurred.

As a successful legal defense maintains a patent, this guidance is applicable.

While the guidance does not specifically allow capitalization, provided the asset in question is specifically identifiable (which a patent is), has a definite life (which a patent does) and is not inherent in the continuing business (which a patent is not), it does not disallow capitalization either.

ASC 370-10-55-2.i also discusses the cost of legal work in connection with patent litigation. While it does not suggest these costs should be capitalized, it does specify that they are not R&D, so there is no requirement to expense them either.

Consequently, unless authoritative guidance disallowing the cost of a successful patent defense to be capitalized is issued, there is no reason to not continue in established practice and capitalize these costs.

ASC 360-10-30-2 specifies that activities necessary to bring an asset to the condition necessary for its intended use include overcoming unforeseen obstacles such as technical problems, labor disputes, or litigation.

As a result, XYZ decided to capitalize the 15,000 paid to ABC, 50,000 paid to EFG and the 20,000 paid to GHI.

Obviously, this interpretation of the guidance is, at best, aggressive. As the cost of resolving the labor dispute involved the entire workforce, it should have been expensed (or at least mostly expensed).

Nevertheless, it is not unheard for companies to try to follow the letter of the guidance even in situations where it is inappropriate.

Consequently, while this site neither condones nor recommends the policy outlined above, in the end, it is an issue that will need to be resolved on a case-by-case basis by the company and its independent auditor.

Abnormal wastage

During installation, XYZ determined that, due to lack of proper supervision, production workers spent several days installing equipment incorrectly, causing irreparable damage. The damaged equipment had originally cost 10,000 and was replaced with identical equipment that also cost 10,000. Deinstalling the improperly installed equipment and installing its replacement cost 5,000.

Dr/Cr

Removal
Abnormal spoilage (administrative expenses)		10,000
	Acquisition in progress: Production line #123		10,000

As outlined in IAS 16.22, abnormal amounts of wasted material, labour, or other resources are not included in the cost of a self-constructing asset. As they cannot be classified as cost of sales or distribution, they would be reported in administrative expense.

While ASC 360-10-30 does not provide similarly explicit guidance, ASC 330-10-30-7 likewise requires abnormal freight, handling costs, and amounts of wasted materials (spoilage) to be expensed.

In contrast to IAS 16.22, ASC 360-10-30 does not specifically refer to the accounting for inventory (ASC 330). Nevertheless, ASC 360-10-30-2 does stipulate (paraphrased): the activities necessary to bring an asset to the condition and location necessary for its intended use encompass the physical construction of the asset and all the steps required to prepare the asset for its intended use.

As bringing an item of inventory to its existing condition and location (ASC 330-10-30-1) is comparable to brining an item of PP&E to the condition and location necessary for its intended use (ASC 360-10-30-2), the guidance in ASC 330-10-30 should be considered when applying the guidance in ASC 360-10-30.

Reinstallation
Acquisition in progress: Production line #123		10,000
Abnormal spoilage (administrative expenses)		5,000
	Cash, Payables, Acccruals, etc.		15,000

Or simply
Abnormal spoilage (administrative expenses)		15,000
	Cash, Payables, Acccruals, etc.		15,000

Relocation, reinstallation and additional development

During installation and break-in, XYZ spent 10,000 relocating equipment originally acquired for a different project. The equipment had cost 60,000, had been recognized as stand-alone asset #105, but had never been brought online. XYZ also determined that the performance parameters of equipment A12, which had originally been purchased for 50,000 and installed as a component of asset #25, were too high for that application. Consequently, it replaced equipment A12 with equipment B24. Equipment B24 cost 25,000 and XYZ spent another 5,000 relocating equipment A12.

Dr/Cr

During installation and break-in
Acquisition in progress: Production line #123		100,000
Relocation expense (classified as administrative)		15,000
Asset #25: A12 (accumulated depreciation)		10,000
Asset #25: B24		25,000
	Asset #105		60,000
	Asset #25: A12		50,000
	Cash, Payables, etc.		40,000

IAS 16.20.c specifies that relocating costs are expensed as incurred and may not be capitalized.

While, in the past, capitalizing these was seen as acceptable under US GAAP, currently it is not.

For example, Intermediate Accounting, 7th Edition, Donald E. Kieso, Jerry J. Weygandt, Wiley 1992, page 512 suggested that this approach is acceptable.

The FASB's guidance for PP&E is sparce, so does not specifically address relocation costs.

Nevertheless, "when a reporting entity relocates in-service assets, the costs of dismantling, transporting, and reassembling the assets should usually be expensed as incurred. These types of costs generally do not extend the useful life of the asset or improve the quantity or quality of goods produced by the asset" (for example) is a widespread interpretation of this sparce guidance.

It is also consistent with the unissued SOP.