Question

Which of the following would NOT be capitalized as part of a purchased asset's cost?

a. All of the other answers are correct
b. none of the costs would be capitalized.
c. Insurance costs once the asset is operational.
d. Non-refundable taxes paid on purchase.

Answer 1

The cost that would NOT be capitalized as part of a purchased asset's cost is the insurance costs once the asset is operational, as they are considered operational expenses and not part of the acquisition or preparation of the asset.

Step-by-step explanation:

In the context of recording the cost of a purchased asset on a company's balance sheet, costs that would not be capitalized typically include the operational expenses incurred after the asset is placed in service. Among the options provided:

• Non-refundable taxes paid on purchase would be included in the capitalized cost.
• Insurance costs once the asset is operational would not be capitalized, as they relate to the ongoing operation and maintenance of the asset rather than its acquisition or preparation for use.

Therefore, the correct answer to the question is "c. Insurance costs once the asset is operational," since this is an expense associated with the operation of the asset and does not contribute to its purchase or installation cost.