Capitalisation of expenses to wip

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PRATEEK GOYAL (Querist)
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06 June 2012 Sir,

We are a builder developing a group housing project.

Plz tell us the accounting of expenses for example advertising expenses etc incurred for the purpose of developing of flats for subsequent sale.

Can we transfer such expenses to WIP account (Project Cost account) and what shall be the head of such account?

Ca Anand Dubey

Ca Anand Dubey (Expert)
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06 June 2012 this is debatable as the advertising is not compulsory for developing the flats . You can only capitalise (WIP of stock as you are doing that business) the expenses which are compulsory and part of the development of that project .

Advertisement expense can be treated as pre-operative expenses before you start the business and start selling project

PRATEEK GOYAL

PRATEEK GOYAL (Querist)
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06 June 2012 Thanks Dubey Ji,

extending my query, usually flats are booked provisionally before construction starts and during construction.

And advertisement is also done regularly for the purpose of sale of units in the project.

What is the best solution?

Ca Anand Dubey

Ca Anand Dubey (Expert)
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06 June 2012 Goyal ji, That booking can be treated as advance from customer and income can be recognised on %age of completion of project basis.

evrything depends upon the progress of the project

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