Ias 9: capitalisation of costs

I need some clarification on capitalization under IAS 16 for self constructed assets by an entity under capital projects

There are multiple Capital project to construct Processing plants for different different types of processing. So People hired for consultancy & engineering from overseas. Should their travelling, boarding, lodging, meals and out of pocket expenses costs be capitalized? My view is that it should not be capitalized except the fees for consultancy and engineering. Travelling, boarding, meals, OPE's do not benefit in economic usage and do not bring the asset in state in which management intend to use. Though it is directly attributable but do not contribute in asset creation. I need view of all IFRS experts. Please substantiate your views.

Further If any consumables is used, should it be capitalised to the project? So I would say if any fuel, small material, big material etc. is used for project, it should be capitalised.. I think this treatment is right.. So if an equipment is used in a capital project (suppose the duration of capital project is 3 years) has an life of 1or 2 or 6 months, should it be capitalised in such capital project?

furthermore, if an another capital asset is used in capital project but such other capital asset is not exhaust completely in that capital project then should such depreciation on other capital asset be capitalised?? why or why not? My views on consumables are

1. On fuel, One time usable things: it should be capitalised, in the same line of treatment that since without incurring these costs, the asset could not have been created

2. On consumables/equipment having life less than 12 months: its consumption should be capitalised, in the same line of treatment that since without incurring these costs, the asset could not have been created

3. On consumables/equipment having life more than 12 months: Such equipments should be capitalised separately in the block to which it pertains, but their amortisation (or depreciation) should be capitalised in the project on the basis of consumption.

Dear Rajesh,

A good case-study you have question on. Let me try to answer it point-wise:

Consultancy costs: Ideally speaking, cost of boarding, lodging, etc do not contribute to the economic value of the asset. However, since these are directly attributable to bring the asset to the present location for intended use, they should be capitalised. If we see it from the view-point of freight inwards etc (direct costs), these also do not contribute, but should be forming part of the cost of asset.

Consumables: There are different views that can be taken on consumables. One way to look at it is the materiality aspect.

If the item is material enough, it may be capitalised, or can be charged to P&L directly if not material.

For consumables with a life of say less than 12 months, why bother maintaining records by capitalisation. It may be desirable to charge these to P&L itself.

For consumables with life of more than 12 months, it is desirable to keep a separate record to account for depreciation on these separately.

About a capital asset used for a capital project, depreciation on unfinished asset should be capitalised (the way we capitalise (add to the value) the factory depreciation in inventory value), being a direct cost.