Capital Expenditures in Asset Acquisition

Steps:

• Define capital expenditure as costs that acquire or enhance long-term assets, benefiting multiple periods.
• Identify item 1 (purchase price) as capital, as it directly acquires the equipment.
• Identify item 2 (installation costs) as capital, as it prepares the asset for use.
• Identify item 3 (staff training) as revenue expenditure, as it relates to operations, not acquisition.

Why A is correct:

• Per IAS 16, capital expenditures include costs to bring the asset to working condition, covering purchase and installation.

Why the others are wrong:

• B includes 3, but training is an operating expense, not capital.
• C excludes 2, but installation qualifies as capital to ready the asset.
• D excludes 1 and includes 3, but purchase is essential capital while training is not.

Final answer: A