ICAEW AF · Chapter 4 · Question 4 of 8
A VAT-registered business buys a machine for £18,000 plus VAT of £3,600. It also pays delivery of £500 plus VAT of £100. All the VAT is recoverable. At what amount should the machine be recorded as property, plant and equipment?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) £18,500
Explanation
Recoverable VAT is not part of the cost of an asset because the business reclaims it from the tax authority; it is debited to the VAT account instead. IAS 16 includes delivery costs that are directly attributable to bringing the asset into use. Cost = £18,000 + £500 = £18,500.
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