A company got a service contract from the government for 6 years.

Question

There is a condition in the contract that the company must buy vehicles and use over the project period and  return back to the government when the project ended. What is the accounting treatment for this vehicle cost.

Answer 1

These vehicle are required to be capitalised if its fulfill following criteria:
Items of property, plant, and equipment should be recognised as assets when it is probable that: [IAS 16.7]

it is probable that the future economic benefits associated with the asset will flow to the entity, and the cost of the asset can be measured reliably.

This recognition principle is applied to all property, plant, and equipment costs at the time they are incurred. These costs include costs incurred initially to acquire or construct an item of property, plant and equipment and costs incurred subsequently to add to, replace part of, or service it.

Depreciation would be over contract period