# Audit of Property, Plant and Equipment (PPE) — Cost Verification
## Elements of Cost of PPE
An item of PPE that qualifies for recognition as an asset must be measured at its cost. The cost comprises three elements:
### 1. Purchase Price
- Includes import duties and non-refundable purchase taxes.
- After deducting trade discounts and rebates.
- Note: Refundable taxes (e.g., recoverable GST input credit) are excluded.
### 2. Directly Attributable Costs
- Costs necessary to bring the asset to the location and condition required for it to operate as intended by management.
- Examples: freight, installation charges, site preparation, professional fees directly related to installation.
### 3. Decommissioning, Restoration, and Similar Costs
- The initial estimate of costs of dismantling, removing the item, and restoring the site (decommissioning costs).
- Included when the obligation arises at acquisition or as a consequence of use (excluding costs incurred for producing inventories).
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## Costs EXCLUDED from PPE Cost
The following must not be capitalised — they must be expensed in the period incurred:
| Excluded Cost Category | Example |
|---|---|
| Costs of opening a new facility | Inauguration costs |
| Costs of introducing a new product or service | Advertising and promotional costs |
| Costs of operating in a new location or with new customer class | Staff training for new customer segment |
| Administration and general overhead costs | General management salaries |
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## Auditor's Responsibility
When auditing PPE additions, the auditor must:
- Verify invoices and purchase documents for the purchase price.
- Confirm that only allowable costs have been capitalised.
- Check whether decommissioning cost estimates are reasonable and properly supported.
- Ensure excluded costs (inauguration, advertising, training) have been charged to the income statement and not capitalised.