The cost of a self-constructed asset is determined using the same principles as for an acquired asset.
The Standard states that if an enterprise makes similar assets for sale in the normal course of business, the cost of the asset is usually the same as the cost of constructing the asset for sale, in accordance with the principles of AS 2 Valuation of Inventories.
Administration and other general overhead costs are not a component of the cost of tangible fixed asset because they cannot be directly attributed to the acquisition of the asset or bringing the asset to its working condition.
The following principles also apply:
- any internal profits are eliminated in arriving at the cost of an asset;
- the costs of abnormal amounts of wasted material, labour or other resources incurred in the production of the self-constructed asset are excluded from its cost; and borrowing costs incurred during the period of production will be included in accordance with AS 16 ‘Borrowing Costs’ if the self-constructed asset meets the definition of a qualifying asset
