Capitalisation of Assets - Cost Billable to Client

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Anurag Kashyap (Querist)
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28 August 2009 Our company has acquired the following asset: Odyssey Server : Rs. 451670
Licence Fee: Rs. 122527
The cost of the same is "Billable to Client". The assets has been acquired to do exclusive work of the client.

Question: Can we capitalise the Asset in our Books? If yes, pls quote the relevant provisions.

vrnanda

vrnanda (Expert)
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03 September 2009 Hi Saurabh,

Asset purchased for the business should always be capitalized irrespective of whether it is for the specific work or for gerenal purpose.

Question of the whether the same is billable to the client depends on the terms that you have with the client.

Treatment differs depends on the terms as follows:

In case the You still remain the owner of the property irrespective of the amount re-imbursed, you can directly capitalize the asset and charge depreciation accordingly.

If Agreement provides you to purchase assets on behalf of your client and the amount will be re-imbursed by the client and once the contract is over the client will take back the asset, in this case Your client will capitalize the asset and charge depreciation as you are holding the asset on belhalf of your client. Hence you are not supposed to capitalize the asset.

In your case, if Odyssey Server purchased and License Fee paid is on behalf of the client, hence depending on your agreement you can capitalize the asset.

View is based on the information provided.

Any further details or questions just ping me.

Regards,
V R Nanda

Anurag Kashyap

Anurag Kashyap (Querist)
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04 September 2009 Thanks a lot for your valuable opinion. We had a discussion with our auditors in this regard. They are of the opinion that 'the asset should be capitalised in the books and the asset should be fully depriciated'.
Pls give your opinion in this regard.

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