## PPE Cost: What Must NOT Be Capitalised
AS 10 – Property, Plant and Equipment defines the cost of a PPE item. However, certain costs — even if incurred at the same time — must not form part of the asset's cost.
### Costs That Are EXCLUDED from PPE Cost
| Excluded Cost | Reason |
|---|---|
| Costs of opening a new facility (e.g., inauguration costs) | Business development, not asset creation |
| Costs of introducing a new product or service (including advertising and promotional activities) | Revenue in nature |
| Costs of conducting business in a new location or with a new customer class (including staff training costs) | Operational/revenue cost |
| Administration and general overhead costs | Cannot be directly attributed to the asset |
### The Correct Test for Capitalisation
A cost should be included in PPE only if it:
1. Is directly attributable to bringing the asset to the location and condition necessary for its intended use, AND
2. Results in future economic benefits flowing to the entity
### Common Capitalisation Errors in Practice
Companies often attempt to capitalise inauguration parties, product launch campaigns, and general management time during a new unit setup. These are revenue expenses — expensing them reduces current profit, so there is always pressure to capitalise them incorrectly.