Capitalized Training Cost
Training Cost is the cost that company spends to develop employee skills and technical, this cost usually classified as the operating expense in the income statement. It will be record under the payroll cost ledger. Company treats it as an operating expense as it is hard to make judgments to prove the future economic benefit.
There is some argument related to the training cost which should be part of the asset. The standard says we should capitalize the cost which brings the asset to be ready to use. The training cost which company spends on the employee to use new acquire/constructed asset. Accountants try to use this point to challenge capitalizing the training cost.
IAS 16 has stated that the cost of property, plant, and equipment consists of: “Any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management.”
The answer is yes, we can capitalize the training cost if we can justify that it is the necessary cost need to bring assets to working condition. Without this training cost, the asset will not be to work as it should be. However, it is not easy to prove that the training cost is necessary to bring assets to use. Most of the asset is actually ready to use after the processional installation. Training cost on asset usage is also the same as normal staff training which is needed to be done to improve working efficiency.
Second, company can recognized asset only when it is under the control of the company. Employees are not under the control of the company, they can resign anytime they want. SO their technical skill from training also goes with them when they leave.
Moreover, we need to access the expected future economic benefit when recognizing assets. The training cost is necessary to increase production or work efficiency. However, there is no guarantee of such kind of improvement after the training. Some training maybe has a good result, while some maybe not.