Capitalisationof assets
This query is : Resolved
20 May 2012
Suppose i have set up a factory building for a new project on 1st Sept, 2010. The factory is totally ready. However the plant and machinery required for production is installed on 1st Dec, 2010. When should the factory building be capitalised. Once production starts, on installation of P&M or from the time Factory building was ready.. Plz advice
21 May 2012
As per AS 10, asset is capitalised when it is ready for intended use.
In case of factory building, its intended use will begin only when the plant & machinery is set up / installed.
Thus 1.12.2010 to be considered as capitalisation date for the entire project.
There is though a concept of capiatlisaing as and when pieces are ready, but only when they are individuially capable generating independent cash flows.
There may be more arguments depending upon further facts of the case.
In case of factory building, its intended use will begin only when the plant & machinery is set up / installed.
Thus 1.12.2010 to be considered as capitalisation date for the entire project.
There is though a concept of capiatlisaing as and when pieces are ready, but only when they are individuially capable generating independent cash flows.
There may be more arguments depending upon further facts of the case.
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