What does the cost of a non-current asset include?

The cost of a non-current asset encompasses all costs necessary to prepare the asset for its intended use. This means that every expense incurred leading up to the asset being ready for use should be included in its recorded cost. This includes not just the purchase price, but also additional expenses such as transportation costs, installation expenses, and any legal fees that might be incurred during the acquisition process. These various costs ensure the asset is fully operational and ready for deployment in the business' activities.

In contrast, just considering the purchase price alone would omit significant expenses that are necessary to put the asset into operation and would give an incomplete depiction of the asset's true cost to the company. Limitations such as focusing solely on transportation costs would also ignore other critical expenditures that contribute to the asset's functionality. Additionally, annual maintenance costs are not included in the asset's initial cost; instead, they are treated as period costs that will be expensed as incurred over the asset's useful life.