Which cost is excluded from the base cost of an asset?a.Repair costsb.Advertising costsc.Improvement costsd.Valuation costs
Question
Which cost is excluded from the base cost of an asset?a.Repair costsb.Advertising costsc.Improvement costsd.Valuation costs
Solution
The cost that is excluded from the base cost of an asset is b. Advertising costs.
Here's why:
a. Repair costs: These are usually included in the base cost of an asset if they are incurred to bring the asset to its working condition.
c. Improvement costs: These are also included in the base cost as they enhance the value of the asset.
d. Valuation costs: These are included in the base cost as they are necessary to determine the value of the asset.
b. Advertising costs: These are not included in the base cost of an asset. They are considered as period costs and are expensed in the period they are incurred. They do not have future economic benefits, so they cannot be capitalized.
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