Cash price, bank charges,stamp duty on sale, comprehensive insurance, third party insurance and registration and optional extra, which of these expenses would be capitalized for depreciation purposes?

Answer 1

When considering expenses related to the acquisition of an asset for depreciation purposes, the following expenses are typically capitalized:

1. Cash Price: The purchase price of the asset is capitalized as it is a direct cost of acquiring the asset.

2. Bank Charges: If these charges are directly related to the financing of the asset acquisition (such as loan setup fees), they can potentially be capitalized. However, general bank fees are usually not capitalized.

3. Stamp Duty on Sale: This is generally capitalized as it is a cost incurred to acquire the asset.

4. Comprehensive Insurance: This is typically considered an operating expense and is not capitalized. Insurance is a recurring cost for protecting the asset rather than a direct acquisition cost.

5. Third Party Insurance: Similar to comprehensive insurance, this is usually treated as an operating expense and is not capitalized.

6. Registration: Registration costs for the asset are generally capitalized as they are directly related to acquiring the asset and making it usable.

7. Optional Extras: If these extras enhance the value or functionality of the asset (e.g., modifications or additional features), they can be capitalized. However, if they are merely for general upkeep or maintenance, they would not be capitalized.

In summary, the expenses that would generally be capitalized for depreciation purposes are the cash price, stamp duty on sale, registration costs, and potentially bank charges if specifically related to the acquisition. Comprehensive and third-party insurance, on the other hand, would not be capitalized. Optional extras may also be capitalized if they significantly add value to the asset.