Proposed statement of position : accounting for certain costs and activities related to property, plant, and equipment;Accounting for certain costs and activities related to property, plant, and equipment
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This Statement of Position (SOP) provides guidance on accounting for certain costs and activities relating to property, plant, and equipment (PP&E). For purposes of this SOP, a project stage or timeline framework is used and PP&E assets are accounted for at a component level. Costs incurred for PP&E are classified into four stages: preliminary, preacquisition, acquisition-or-construction, and in-service. The SOP requires, among other things, the following: A. Preliminary stage costs, except for payments to obtain an option to acquire PP&E, should be charged to expense as incurred. B. Preacquisition and acquisition-or-construction stage costs should be charged to expense as incurred unless the costs are directly identifiable with the specific PP&E. Directly identifiable costs include only: 1. Incremental direct costs of activities incurred in transactions with independent third parties for the specific PP&E. 2. Certain costs directly related to specified activities performed by the entity for the specific PP&E. 3. Payments to obtain an option to acquire PP&E. C. Costs related to PP&E that are incurred during the in-service stage, including costs of normal, recurring, or periodic repairs and maintenance activities, should be charged to expense as incurred unless the costs are incurred for (1) the acquisition of additional PP&E or components of PP&E or (2) the replacement of existing PP&E or components of PP&E. D. Removal costs incurred during replacement of PP&E, except for certain demolition costs, should be charged to expense as incurred. E. During all stages, general and administrative costs and overhead costs, including costs of support functions, should be charged to expense as incurred. F. Costs of planned major maintenance activities are not a separate PP&E asset or component. Those costs should be charged to expense, except for acquisitions or replacements of components that are capitalizable under the in-service stage guidance of this SOP. G. A component is a tangible part or portion of PP&E that (1) can be separately identified as an asset and depreciated or amortized over its own expected useful life and (2) is expected to provide economic benefit for more than one year. If a component has an expected useful life that differs from the expected useful life of the PP&E asset to which it relates, the cost should be accounted for separately and depreciated or amortized over its expected useful life. Component accounting should begin at the time of acquisition or construction. Component accounting for a replacement should begin at the time of replacement. If an entity replaces a part or portion of a PP&E asset that has not been previously accounted for as a separate component, and the replacement meets the definition of a component, then the entity should capitalize the replacement, account for it as a separate component going forward, estimate the net book value of the replaced item, and charge that net book value to depreciation expense in the period of replacement. H. This SOP is effective for financial statements for fiscal years beginning after June 15, 2002, with earlier application encouraged.
Assets (Accounting); Employee fringe benefits -- United States -- Auditing
Accounting | Taxation
American Institute of Certified Public Accountants. Accounting Standards Executive Committee, "Proposed statement of position : accounting for certain costs and activities related to property, plant, and equipment;Accounting for certain costs and activities related to property, plant, and equipment" (2001). Statements of Position. 285.