Question

Question: What accounting concept justifies charging low-cost plant asset purchases immediately to an expense account?

Short answer

Low-cost plant assets are charged under revenue expenditure.

Step-by-step solution

Plant assets

Plant assets are tangible long-lived assets (the useful life of more than one financial year) used to produce or sell products and services. Plant assets are also known as property, plant, and equipment (PP&E) assets or fixed assets.

Revenue expenditure

Revenue expenditures, also called income statement expenditures, are additional costs of plant assets that do not materially increase the asset’s life or productive capabilities. They are recorded as expenses and deducted from revenues in the current period’s income statement.

Such expenses are recurring in nature. It includes payments made or incurred during the normal course of business. The benefits of which are during the same accounting period.