Question

Which of the following BEST defines 'capitalizing assets'?

		Recording the remaining market value of a plant asset.
		Recording the net value of a plant asset's historical cost and accumulated depreciation.
		Recording the amount of a plant asset's value used in a given fiscal period.
		Recording the value paid for the purchase of a plant asset.

Answer 1

Answer: Recording the value paid for the purchase of a plant asset.

Explanation to the correct answer

capitalizing asset means to record all the cost incurred with respect to the assset till it is put to use and expensing it over a period of its useful life. The depreciation shall be charged over the period of its useful life.

Explanation to why other options are incorrect

a)Recording the remaining capital value of a plant asset

This is incorrect because while intialy accounting for the capital asset all cost incurred till date of asset put to use should be recorded.Remaining capital value will be different from the actual cost of the asset.

b)Recording the net value of plant assets historical cost and accumulated depreciation.

The closing value of any depreciable asset at the end of financial year will be the net value of historical cost less depreciation. However when recording it for the first time cost incurred for capitalising the asset is accounted for and depreciation is adjusted at the year end. Hence the statement is incorrect.

c) Amount of plant asset's value used in a given fiscal period.

This is also incorrect because the total value of asset at purchase cost is first recorded and then depreciated over the period of its useful life.