What goes into the cost of a new machine
Which costs belong in the register cost of a new production machine, which stay as expenses, and how to capture the bills and start depreciation on time.
By Achekam · · 5 min read · For Manufacturing businesses in South Africa, Nigeria, Kenya
A new production machine rarely arrives as one invoice. There is the machine itself, from a supplier abroad or a local agent. There is freight and clearing, sometimes import duty. A rigger lifts it into place, an electrician runs a new supply, a builder pours a reinforced base, and the supplier's technician spends a week commissioning it and training the operators. Months later, someone has to decide which of those bills belong on the fixed-asset register as the cost of the machine, and which are simply expenses.
Getting that split right matters. Put too little on the register and the year the machine arrives carries costs that belong to its whole working life. Put too much on it and you inflate the asset and spread ordinary expenses over years. This article sets out the usual dividing line, how to capture the bills, and how to bring the machine onto Achekam's register at the right cost and from the right date.
Purchase price, delivery and installation
The general principle is that the cost of a machine is what it took to buy it and get it working in the place and condition you intend. ACCA's article on property, plant and equipment, measurement and depreciation explains the initial measurement of such assets under IAS 16, which is the framework your accountant will apply. Typically included:
| Cost | Usually part of the machine's cost? |
|---|---|
| Purchase price, less trade discounts | Yes |
| Import duties you cannot recover | Yes |
| Freight, insurance in transit and clearing | Yes |
| Site preparation, such as a base or foundations for the machine | Yes |
| Rigging, installation and assembly | Yes |
| Electrical connection specific to the machine | Yes |
| Professional fees, such as an engineer's sign-off | Yes |
| Testing and commissioning to get it working properly | Yes |
VAT you can recover as input tax is not part of the cost. Only VAT you cannot claim back would be.
Costs that stay expenses
Just as important is what stays out:
- Training operators. Even if the supplier's technician does it during commissioning, training is generally an expense.
- Running-in losses. Wasted material and low output while the line settles down after it is ready for use are operating costs.
- General overheads. Your own management's time, office costs and the like are not added to the machine.
- Repairs and servicing after it is in use. Routine maintenance is an expense; only genuine improvements are candidates for the register.
- Finance charges. Interest on a loan for the machine is a separate question for your accountant, not something to add by habit.
Where one bill mixes both, such as a commissioning invoice that also covers a training week, ask the supplier to split it, or split it yourself on a reasonable basis and keep the working.
Capturing the supplier bills
Every cost starts as a supplier bill. In Achekam, bills are recorded line by line with VAT, and a bill with no purchase order behind it waits for approval before it posts; bills can be paid in full or in parts from a chosen bank account. If the machine was bought through a purchase order, posting the matched supplier invoice puts it in the ledger as expense, input VAT and trade payables, and the supplier's invoice number stops it being posted twice.
The practical risk is that a project's costs end up scattered across ordinary expense accounts while the machine is being installed. Each business has its own chart of accounts and can add accounts, so create one such as "Plant under installation" to collect the costs together. Where a bill's cost lands in an expense account, move it with a manual journal; Achekam refuses unbalanced journals and journals dated in a closed month, and corrects posted ones only by reversal. Keep a project schedule listing every bill, its amount excluding recoverable VAT, and whether it is capital or expense.
A machine project, in words
A packaging plant buys a new filling machine through a purchase order. The machine invoice, the freight and clearing bill, the rigger's bill, the electrician's bill and the supplier's commissioning invoice arrive over two months. The bookkeeper records each and moves the capital part into Plant under installation. The commissioning invoice includes a training day, which is left in staff training. When the machine passes its acceptance test, the total in Plant under installation becomes the machine's cost on the register.
Adding the machine at cost
Achekam's fixed-asset register lets a business add assets at cost, depreciate them monthly by straight line or reducing balance with a journal each month, and dispose of them with the profit or loss posted. Add the machine using the total from your project schedule, and confirm with your accountant that the cost sits once in the asset account and has not been left in the expense accounts as well.
Register significant parts separately where they wear out at different rates, such as a machine and a separately bought control system, if your accountant recommends it. Use the asset name to identify the machine and its location in the plant, so it can be found years later.
Achekam does not work out tax wear-and-tear; the tax allowance on the machine is calculated separately with your accountant.
Depreciating from when it is ready for use
Depreciation starts when the machine is ready to be used as intended, not when the first invoice arrives and not when it finally reaches full output. For most machines, that is the date it passes commissioning.
That is why the holding account matters: costs gather there during installation without being depreciated, and the machine joins the register in the month it is ready. Choose the method and useful life with your accountant; how the choice between methods plays out is discussed in choosing a depreciation method for equipment, and the line between improving an asset and repairing it in refurbishment: asset or repair?.
Before the next machine arrives
Set up the holding account, agree the capital-versus-expense list above with your accountant, and ask suppliers to separate training and spares from the machine on their invoices. Then the register entry becomes a matter of adding up a schedule, not reconstructing a project months later.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
