Which of the following best describes the general rule for cost inclusion for plant assets?

• A. Only costs incurred after the asset is placed in service are included in the cost of plant assets.
• B. Only the purchase price of the asset should be included; installation and transportation costs are expensed immediately.
• C. All costs necessary to acquire the asset and prepare it for its intended use should be included in the cost of plant assets.
• D. Maintenance and repair costs are always included in the cost of plant assets.

Answer: (C)

Verified step by step guidance

1. Understand the concept of 'cost inclusion for plant assets': This refers to the accounting principle that determines which costs should be capitalized as part of the asset's value versus expensed immediately.
2. Identify the key rule: The general rule is that all costs necessary to acquire the asset and prepare it for its intended use should be included in the cost of plant assets. This includes purchase price, transportation, installation, and any other costs directly attributable to bringing the asset to its operational state.
3. Clarify exclusions: Maintenance and repair costs are not included in the cost of plant assets. These are typically expensed as incurred because they do not enhance the asset's value or extend its useful life.
4. Analyze the incorrect options: Costs incurred after the asset is placed in service are not included in the initial cost of the asset. Similarly, installation and transportation costs are not expensed immediately; they are capitalized as part of the asset's cost.
5. Summarize the correct approach: To determine the cost of plant assets, focus on all necessary and directly attributable costs incurred to acquire and prepare the asset for its intended use, excluding ongoing maintenance and repair expenses.