Incidental acquisition costs

What it means

Incidental acquisition costs are costs a company incurs in connection with buying an asset in addition to the purchase price itself. They include transport, installation, customs duty, agents’ commissions, insurance in transit, design documentation and fees for commissioning.

Under Slovak accounting rules, incidental costs are not expensed directly but form part of the asset’s acquisition cost. For fixed assets they reach the income statement gradually through depreciation, and for inventory only when it is used or sold.

Costs not directly related to the acquisition are excluded, such as interest on a purchase loan after the asset is put into use, exchange differences, routine maintenance or training staff to operate a new machine, unless the rules provide otherwise.

How it works in practice

When a machine is purchased, we collect all related invoices: from the machine supplier, the haulier, the installer, the customs broker and the electrician. These are added to the acquisition cost, and the machine is put into use only after installation and trial operation are complete.

For inventory, the company’s accounting policy determines whether incidental costs are assigned to specific deliveries or spread across all purchases for the period. For imports, incidental costs can be significant, such as freight, duty or transit insurance.

Correctly capitalising incidental costs also affects depreciation. A higher acquisition cost means higher depreciation in later years but lower expenses in the year of purchase. Tax planning must take this into account rather than expensing incidental costs at once.

What to watch out for

A common mistake is expensing transport or installation directly when the invoice comes from a different supplier than the asset. In an audit, the tax authority disallows the expense in that year and the company must correct depreciation, leading to an amended return.

For items close to the fixed asset threshold, incidental costs can decide whether the item is depreciated or expensed straight away. The total acquisition cost including incidental costs must therefore be assessed, not just the supplier’s invoice price.