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Excerpt from ASC 360-10-30-1
Definition from ASC 360-10-20
Excerpt from ASC 970-340-25-3
Partial definition from ASC 720-25-20
Type of cost |
Preliminary |
Pre-acquisition |
Construction |
Considerations |
Construction labor and other direct costs of construction |
Expense
|
Capitalize
|
Capitalize
|
Labor and related direct costs should be expensed until the project is probable. Costs that are direct and clearly incremental should be capitalized once the project is probable and during the construction stage.
|
Consulting fees
|
Expense
|
It depends
|
It depends
|
Fees should be expensed until the project is probable. Once the project is probable, directly identifiable costs should be capitalized. The amount capitalized is limited to those amounts directly related to the site and project selected (e.g., costs related to evaluation of potential projects or locations should be expensed).
|
Contribution to local community organization or other similar gift made as a precondition to obtaining necessary permits or licenses
|
Expense
|
It depends
|
It depends
|
Contributions should be expensed in the period made unless they are exchange transactions for the purchase of a good or service. Contributions made in exchange for a required license or permit may qualify for capitalization. See PPE 1.2.1.3.
|
Demolition costs
|
It depends
|
It depends
|
It depends
|
Demolition costs should be expensed as incurred, except in certain situations when incurred in conjunction with an acquisition or lease of real estate. See PPE 1.2.1.3.
|
Due diligence fees
|
Expense
|
It depends
|
It depends
|
See discussion under “Consulting fees.”
|
Engineering, procurement, and construction contract costs
|
Expense
|
Capitalize
|
Capitalize
|
Direct costs of construction should be capitalized. Other costs should also be capitalized as part of the direct costs of construction if the amounts are considered an incremental direct cost.
|
Feasibility studies
|
Expense
|
It depends
|
It depends
|
See discussion under “Consulting fees.”
|
Ground lease expense
|
Expense
|
Expense
|
Generally expense
|
Capitalization of ground lease expense by a lessee for property constructed for its own use is prohibited. However, ground lease expense should be capitalized during the construction of property for sale or rental. See PPE 1.7.5.
|
Interest costs
|
Expense
|
Capitalize
|
Capitalize
|
Interest costs should be capitalized in accordance with the criteria in ASC 835-20. See PPE 1.3.
|
Land option
|
Capitalize
|
Capitalize
|
Capitalize
|
The unissued PP&E SOP and ASC 970-340-25-3 specifically permit capitalization of land options, even during the preliminary stage when the project is not yet probable. See PPE 1.2.1.2.
|
Legal fees
|
Expense
|
It depends
|
It depends
|
See discussion under “Consulting fees.”
|
Materials and supplies
|
It depends
|
Capitalize
|
Capitalize
|
Materials and supplies should be expensed during the preliminary stage unless they have an alternative use (e.g., inventory). See PPE 1.2.
|
Operating contract negotiation (e.g., fuel supply agreements, power sales agreements, operating and maintenance agreements)
|
Expense
|
Expense
|
Expense
|
Contract negotiation costs should be expensed. Although the project may not be viable without operating contracts (e.g., a signed power sales agreement is a prerequisite for financing), these contracts are not directly related to or necessary for construction of the asset itself.
|
Organizational costs (e.g., corporate bylaws, other agreements)
|
Expense
|
Expense
|
Expense
|
Organizational costs should be expensed in accordance with ASC 720-15.
|
Overhead, including rent, depreciation, and support functions (executive management, accounting, purchasing, corporate legal, human resources, and information systems)
|
Expense
|
Expense
|
Generally expense
|
General and administrative and overhead costs should be charged to expense as incurred, with a limited exception for property constructed for sale or rental.
|
Outsourced administrative functions (e.g., accounting, purchases, and payables)
|
Expense
|
Expense
|
Generally expense
|
General and administrative and overhead costs should be charged to expense as incurred, even if the costs are incurred by a third party on behalf of the reporting entity. These costs may be eligible for capitalization if the property is constructed for sale or rental.
|
Project financing—external fees
|
Capitalize
|
Capitalize
|
Capitalize
|
Specific incremental costs directly attributable to a project financing should be capitalized (e.g., debt issuance costs). Any amortization recorded during construction would be included in capitalized interest calculations.
|
Project financing—internal costs and salaries
|
Expense
|
Expense
|
Expense
|
General and administrative costs and overhead costs should be charged to expense as incurred.
|
Property taxes
|
Expense
|
Expense
|
Generally expense
|
Property taxes are a cost of owning the property and are not a direct incremental cost of construction, thus such amounts should be expensed as incurred. However, similar to ground lease expense, such amounts may be capitalized if the property is being constructed for sale or rental. See PPE 1.7.2.
|
Recruiting (costs to identify and hire operating and administrative personnel on site)
|
Expense
|
Expense
|
Expense
|
Recruiting costs should be expensed in accordance with ASC 720-15.
|
Salaries—developers, legal counsel, and other personnel working directly on the project
|
Expense
|
It depends
|
It depends
|
All payroll and payroll-related costs should be expensed until the project is probable. Once the project is probable, directly identifiable payroll and payroll-related costs should be capitalized. The amount capitalized should be limited to those amounts directly related to the site and project selected (e.g., costs related to evaluation of potential projects or locations should be expensed). In addition, occupancy and similar costs associated with personnel working on the project should be expensed.
|
Salaries—support functions
|
Expense
|
Expense
|
Generally expense
|
General and administrative costs should be expensed as incurred, with a limited exception related to property constructed for sale or rental. See discussion under “Overhead” costs.
|
Site permit and license fees
|
Expense
|
Capitalize
|
Capitalize
|
Site permit and related fees are a direct cost of construction and should be capitalized once construction is probable.
|
Site security costs
|
Expense
|
Capitalize
|
Capitalize
|
Site security costs are a direct cost of construction and should be capitalized once construction is probable. Amounts capitalized should be limited to incremental security costs.
|
Internal use software development costs
|
Expense
|
Capitalize as permitted
|
Capitalize as permitted
|
Internal use software development costs should be capitalized in accordance with the requirements of ASC 350-40. See SW 3.
|
Training costs
|
Expense
|
Expense
|
Expense
|
Training costs should be expensed in accordance with ASC 720-15.
|
Travel expenses—internal and third party
|
Expense
|
It depends
|
It depends
|
See discussion under “Consulting fees.”
|
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