To: Busy Signals, Unlimited
From: Brooke Perryman, Jimmy Wall, Taylor Morris, and Barrett Watson
Subject: Deferral of Training Costs
Should Busy Signals, Unlimited (Busy) defer the costs of training to TSRs?
Alternative #1 –
Busy should not defer the costs of trainings its TSRs since such costs do not meet the definition of an asset.
Assets are things that a company owns that have value. This typically means they can either be sold or used by the company to make products or provide services that can be sold. Assets include physical property, such as plants, trucks, equipment and inventory. It also includes things that can’t be touched but nevertheless exist and have value, such as trademarks and patents. And cash itself is an asset. So are investments a company makes.
IAS 16 requires more than just a cost to be directly attributable before it qualifies for capitalization as cost of the asset or to be included in the carrying amount of the non-current asset or fixed asset. According to IAS 16 Paragraph 16(b) the cost of an item of property, plant and equipment comprises: Any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management. In simple words cost should be directly attributable and in addition to that this directly attributable cost must be incurred to bring the asset into working conditions as intended and if such costs are not incurred then asset cannot be operated to its maximum capability or as intended by the users of such assets.
Most of the time training costs are not necessary to bring the asset into intended location and condition, therefore they are expensed as they are incurred. However, for the sake of argument, if we accept that certain training cost is necessary to bring the asset into working condition then we will have to check whether training costs meet the definition and