Accounting Standard -10

This query is : Open

Querist : Anonymous

Querist : Anonymous (Querist)

18 August 2010 My case is

THe company replaced the factory premises with Cement roads in the place of tar roads.

The management is arguing tat this expenditure is to be charged to revenue.

But in my opinion the expenditure incurred increase the life of the asset. so the expenditure is to be capitalised

whether my opinioni correct or not? if yes or no,provide me answers with necessary case references as soon as possible

Thanks in advance

Sarath

CA.Amit Revankar

CA.Amit Revankar (Expert)
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18 August 2010 The details which is given by u is too short to comment. Furthur such matter are to be discussed taking an understanding of all fact and circumstances of the case under which we are speaking. The expenditure increases the life of asset is one principle to decide wether an expenditure is revenue or capital, but its an not a sole conclusion.

Bhaskaran Chackrapani Warrier

Bhaskaran Chackrapani Warrier (Expert)
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18 August 2010 It can be treated as revenue expenditure.

Citation :- CIT Vs. Tractors and Farm Equipments Ltd (1982) 133 ITR 147(Mad)
.
Crux of the cited case is,Construction of new road creates a new asset whereas expenditure on black topping of an already laid out road , as in the case of painting a house, is a revenue expenditure.

CA. Rayan Sequeira

CA. Rayan Sequeira (Expert)
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18 August 2010 Clearly in this case a new asset comes into existance as a tar road is converted to a concrete road. The nature of the asset in this instance has under gone a change including its life. Hence as per AS 10 it tantamounts to a Capital expenditure and hence needs to be Capitalised. Further the case cited above refers were a tar road is replaced by a tar road, this will lead to the life of an asset to increase but not its nature. hence it was decreed to be revenue in nature like maintainance expenditure. However in this case a tar road is replaced and concretised its a new asset altogether.

Querist : Anonymous

Querist : Anonymous (Querist)

19 August 2010 I am giving full details of the case

In the factory premises, Tar roads are replaced by laying concrete roads.
Mangement of the company is arguing us that this expenditure is nothing but replacement expenditure , so we will treat this expenditure as revenue.

As per AS-10, My opinion is laying of concrete roads will increase the life and enduring benefit of an asset. So, this expenditure is to be capitalised

Please provide me any expert opinion on these cases or any case laws as soon as possible.