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February 11, 2009

Is the installation labor for a new asset expensed or included in the cost of the asset?

The cost of installation is part of the cost of the asset. An asset’s cost is considered to be all of the costs of getting an asset in place and ready for use. Therefore, the labor cost of installing a new machine is considered to be part of the asset’s cost and not an immediate expense of the period.

The cost of the installation labor will include the workers’ wages and the fringe benefits applicable to those wages.

The total cost of the asset, including installation costs, will be depreciated over the useful life of the asset.

The concept of materiality does allow you to expense the installation cost immediately if the amount is insignificant.

Learn more about Accounting Principles.

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About the Author: Harold Averkamp (CPA) has worked as an accountant, consultant, and university accounting instructor for more than 25 years.

He is the author of the 2010 Master Accounting Download Package which has been praised for it's ability to simplify accounting in a way that anybody can understand.



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Comments

13 Responses to “Is the installation labor for a new asset expensed or included in the cost of the asset?”

  1. santosh on February 11th, 2009 11:13 pm

    Purchase , Purchase invoice, input tax, input on machinery,

  2. halima on February 18th, 2009 3:55 am

    i would like to learn free accounting and and how manage small business

  3. halima on February 18th, 2009 3:59 am

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  5. sajad hussain on February 22nd, 2009 12:41 pm

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  7. Manish Saini on February 24th, 2009 7:49 am

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  8. Manish Saini on February 24th, 2009 7:50 am

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  9. Nancy on March 17th, 2009 3:49 pm

    I would like to know where I can look up information just like this: What costs are included in the cost of an asset? I know about installation cost, initial training, freight, extended warranties, (NOT maint agreements). But what about bank fees for wiring payment?
    Or other bank fees (currency conversion)? I think that these should be included because they are a part of getting the asset in place and ready for use. Thanks.

  10. K.K.Ray on May 5th, 2009 1:48 pm

    Bank fees may be capitalised but exchange gain/(losses) shouldn’t be capitalised.

  11. bin on May 31st, 2009 2:42 pm

    Thank u so much for ur helpfull notes.
    I have one question that i need t answer me very soon.
    My question is The fee made for fuel, wage & salary, water utility, and other things will I considered as expense so that it will be seen as a loss till the construction of the hotel get finished or i have to merge with fixed assets so that i will not see a loss in my income statement???? plz give me ur advice

  12. Thomas on September 23rd, 2009 7:06 am

    What about first month electric cost for newly acquired equipment is it part of cost of equipment or is it an expense? Thanks

  13. Vivi on February 1st, 2010 10:38 pm

    I’ve learned a lot from your site. althougth the rules are quite different from that i have in china. but the concept is the same, and your explain is easy to understand. :)
    i will be grateful that if you’re willlingness to talk about the VAT on fixed asset.
    i would like to know the difference.
    thanks!

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