Dubai financial audit managers can now add directly attributable expenses to the cost of acquiring a long-term asset. Although IFRS clearly defines directly attributable expenses and gives a few examples of them, there are many other items that we aren’t sure about.
In this guide, we shall examine directly attributable expenses using a magnifier. It will also provide some guidance for future use. It is rather wise to focus on tangible assets acquisitions based on IAS 16. But the basic principles cut across to intangibles.
What Are the Rules?
IAS 16 states that Dubai audit services can capitalize costs directly resulting from the relocation of the asset to the condition it needs to operate in the way management intended. The following are some examples of expenses that are directly attributable to IAS 16:
- Costs of employee benefits (based on IAS 19, Employee benefits) directly related to the construction or acquisition of PPE.
- Site preparation costs
- Delivery and handling charges at the beginning
- Costs of installation and assembly
After deducting any net proceeds from the sale of items that were produced during the transfer, the cost of testing the asset’s functionality.
Professional Fees
Rather, IAS 16 paragraph 19 lists examples of costs which are not associated with an item of PPE, and cannot therefore be capitalized.
Opening A New Facility Costs
- The costs of introducing a product or service to the market
- The costs of opening a new business or working with a new customer class.
- Administration and general overhead costs
IAS 16 also clarifies that the costs of operating below full capacity, initial operating loss, and relocation or reorganization of entity operations is not capitalized.
It’s simple enough. In practice, however, there are many things that audit firms in Dubai and other financial statement preparers need to be careful with and aren’t sure if they should be included in an asset’s cost. These questions are especially relevant when you build a large asset such as a mine or plant.
Let’s have a look
Employee Benefits Cost
Company auditors can only capitalize employee benefits that result from the construction of or acquisition of an asset, as explained above.
Here, two principal questions arise:
- What employee groups are affected by the construction of or acquisition of an asset?
- There is no admin, general, or research functions. No marketing and advertising.
This means site workers, in-house surveyors and architects, or production supervisors can all be capitalized. Internal auditors can capitalize quality control and testing if they are necessary to make an asset work. It is not possible to capitalize any employee benefits paid to general managers, accountants who are solely responsible for ship’s accounting.
What expenses can these employees be capitalized for?
All employee benefits covered by IAS 19 are the answer, and that is:
- Employee benefits for short-term (vacation, salaries and wages),
- Post-employment benefits
- Additional long-term benefits
- Termination benefits.
Keep in mind these costs are not recognized as employee benefits as per IAS 19. They should be treated separately.
- Your employees’ travel expenses
- Your employees should be trained
How Do Audit Services Add Employee Benefits to The Cost of The Asset?
This is because there is an acceptable allocation method.
For example an entity in Dubai UAE may want to build a ship, and we can see the company employee working hours and wages details below.
- 1,500 hours spent on ship construction
- 300 hours spent on other projects and work
- He took 100 hours of vacation pay.
The following expenses were incurred by the Dubai company for employee benefits related:
- Salary: AED 18 000
- Paid vacation compensation: AED 1000
- Contribution to a pension fund – defined contributions plan: AED 2000
What number of these benefits can audit teams include in the cost of a ship’s price?
All of these expenses can be included in employee benefits that are allocated on a reasonable base. Audit services can assign it based upon the time spent on ship construction (1 500hrs) and total work (300+ 1500=1 800hrs).
The paid vacation time is not taken into consideration for allocation purposes. This means that the compensation for paid vacation will be attributed to the cost of a vessel. This is because a company must provide vacations to its employees. A vacation is not an additional cost for working hours.
Calculation:
- Allocation of salary: AED 18 000*1 500/1 800 = AED 15 000
- For vacation compensation: AED 1 000*1500/1 800 = AED 833
- Contribution to a pension plan: AED 2 000*1500/ 1 800 = 1 667
- The Total Amount is: AED 17500
Keep in mind that all expenses are included in this calculation.
