Capitalisation of Fixed Assets

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Car insurance is generally treated as a revenue expense since it covers only one year. However, many experts agree that the first insurance premium paid before the vehicle is put to use should be capitalized as part of the asset cost under AS 10, while renewal premiums should be charged to revenue.

Dimpal Kumar

Dimpal Kumar (Querist)
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30 December 2009 Insurance expenses paid at the time of purchase of a new Car , Whether should be capitalised to the Cost of Fixed Assets ( Car) or should be Charged to Revenue .

CA Balram Sharma

CA Balram Sharma (Expert)
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30 December 2009 Capital expense means, expense provide the benefit for the long period,

In case of car insurance, normally car insurance is for 1 year,

so you may take the insurance expense as revenue, how ever provision for the prepaid insurance should be made if applicable

CA.ViVeK M ACA

CA.ViVeK M ACA (Expert)
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30 December 2009 Insurance expense is for a period of 1 year and after that it has to be renewed. As per As10 You can capitalize the cost of asset+freight charges to bring the asset to the locaton ready to use+Instalation charges only need to be capitalized. Taking in to account, insurance expense cannot be capitalized.

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Heera Nahariya

Heera Nahariya (Expert)
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30 December 2009 First insurance for the purchase of Fixed Asset is to be capitalised.

Provision for taxation in this regards runs as follows.... anything done before putting the asset into use is to be capitalised or say to be added into actual cost of the asset.

As now a days first insurance is must. It is not open to the purchaser to ignore insurance for vehicle.

As it is an obligation to purhcase the asset same should have been added to the actual cost.

Hence we can say that first insurance is to be added to the cost of the asset and any renewal of such insurance is to be treated as revenue expenditure.

Refer V.K. Singhania's Direct Taxes Law & Practice (Section 32 & 43(1)

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CMA. Dinesh S Adhikari, ACMA

CMA. Dinesh S Adhikari, ACMA (Expert)
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30 December 2009 Argreed with Mr. Heera...

Regards!!!
Dinesh S. Adhikari

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CMA Ramesh Krishnan

CMA Ramesh Krishnan (Expert)
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30 December 2009 first Insurance premium shuold be capitalised

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Dimpal Kumar

Dimpal Kumar (Querist)
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31 December 2009

Thanks

I am also in favour of Capitalisation. ( As per As - 10)

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CA PARTH SHAH

CA PARTH SHAH (Expert)
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17 April 2013 THE PASSING OF VEHCLE BY RTO AUTHORITIES WONT BE CLEARED UNLESS VEHICLE IS INSURED. HENCE FOLLOWING THE CONCEPT OF AS 10, THE FIRST INSURANCE MUST BE CAPITALISED.

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