Capital expenditure includes all costs to acquire and prepare an asset for use

Steps:

• Identify purchase cost of the machine: $20,000
• Add installation costs necessary to make it operational: $3,000
• Exclude expected residual value, as it is a future estimate for depreciation, not initial cost
• Calculate total: $20,000 +$3,000 = $23,000

Why C is correct:

• Under IAS 16, the cost of a non-current asset includes purchase price plus directly attributable costs like installation, totaling $23,000 for capitalization.

Why the others are wrong:

• A: Subtracts residual value ($20,000 -$5,000), but residual is not deducted from initial capital outlay.
• B: Includes only purchase price, ignoring capitalizable installation costs.
• D: Adds residual value ($20,000 +$5,000 + $3,000? miscalculation), but residual is not part of acquisition cost.

Final answer: C