Which of the following costs are included in the capitalized cost of a tangible asset?

• A. Employee training costs for using the asset
• B. Advertising costs to promote the asset
• C. Routine maintenance expenses after acquisition
• D. Purchase price, installation costs, and legal fees related to acquisition

Answer: (D)

Verified step by step guidance

1. Understand the concept of capitalized costs: Capitalized costs are expenditures that are included in the initial value of a tangible asset on the balance sheet. These costs are directly related to acquiring and preparing the asset for use.
2. Identify the types of costs that qualify for capitalization: Costs that are necessary to bring the asset to its intended use, such as purchase price, installation costs, and legal fees related to acquisition, are included in the capitalized cost.
3. Evaluate the costs provided in the problem: Employee training costs, advertising costs, and routine maintenance expenses after acquisition are not directly related to acquiring or preparing the asset for use. These are considered operating expenses and are expensed in the period incurred.
4. Focus on the correct answer: The purchase price, installation costs, and legal fees related to acquisition are directly tied to the acquisition and preparation of the asset, making them eligible for capitalization.
5. Summarize the reasoning: Only costs that are necessary to acquire and prepare the asset for its intended use are included in the capitalized cost. Other costs, such as training, advertising, and maintenance, are expensed as incurred.