Acquisition of Assets:
The cost method of accounting is used for the initial recording of all acquisitions of assets controlled by the authority. Cost is determined as the fair value of the assets given as consideration plus costs incidental to the acquisition, including architects’ fees and engineering design fees and all other costs incurred in getting the assets ready for use.
Property, plant and equipment:
All items of property, plant and equipment with a cost, or other value, in excess of $3,000 are recognised in the year of acquisition. All other such items with a cost, or other value, less than $3,000 are charged as an expense.
Items or components which form an integral part of an asset are recognised as a single asset (functional asset). The recognition threshold is applied to the aggregate cost of each functional asset.
The cost of replacing the ‘B55’ fire appliance photographed on the front cover of the latest annual report with a unit of the same or similar capability is estimated to be $260,000, including fitting costs to convert the standard vehicle to a fire fighting unit of $70,000.
A spare set of tyres for the ‘B55’ appliance is obtainable at a current cost to the CFRA of approximately $5,000. Fitting costs are typically included in the overall cost of a new set of tyres. Tyres are typically replaced on these units every twelve (12) months.
---the question:
1. Assuming the CFRA acquired a replacement fire appliance for the ‘B55’ during the last financial year, state the cost of acquisition on the basis of the information supplied.
(This has to be relate to AASB 116)