## Initial Measurement of PPE – Cost Components
When PPE is purchased or self-constructed, the initial cost includes:
### Inclusions in Cost
| Component | Notes |
|---|---|
| Purchase price | Less any trade discounts |
| Non-refundable taxes | e.g., GST where Input Tax Credit is NOT available. If tax is refundable/claimable, do NOT include in cost. |
| Directly attributable expenses | Delivery costs, installation charges, employee costs (only if employees were directly involved in construction/acquisition) |
| Testing costs (net) | Cost of testing minus any income earned during testing |
| Professional fees | Consultancy/legal fees taken specifically for constructing or acquiring the asset |
| Borrowing costs | Only if the asset is a qualifying asset as per AS 16 |
| Decommissioning/dismantling/site restoration cost | Recorded at present value on the date of acquisition |
### Exclusions from Cost
| Excluded Item | Treatment |
|---|---|
| Inauguration/advertising/promotional expenses | Expense to P&L |
| Training costs | Expense to P&L |
| General/administrative overheads | Expense to P&L |
| Initial operating losses | Expense to P&L |
| Cash discounts received | Reduce from PPE cost; transfer to P&L |
| Miscellaneous income not related to construction | Transfer to P&L |
| Interest expense (general borrowing) | Transfer to P&L (unless qualifying asset under AS 16) |
| Income from incidental use before construction begins | Transfer to P&L (do NOT reduce from asset cost) |
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## Testing Cost – Special Rule
Testing income is only netted against testing cost if the testing occurs before the asset is available for use (i.e., before it is brought to the location and condition necessary for intended use).
Net Testing Cost = Gross Testing Cost − Testing Income
This net figure is added to the cost of the asset.
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## GST / Tax Treatment
- GST not refundable (no ITC) → Add to cost of asset
- GST refundable (ITC available) → Do NOT add to cost of asset