Cost of land or building

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This discussion addresses the classification of land development costs, such as filling, cleaning, and levelling, for a business constructing its own premises. The core question is whether these expenses should be capitalised as part of the land cost or the building cost. While one perspective suggests adding them to building costs as prerequisites for construction, accounting standards (AS 10) mandate capitalising all costs incurred to make an asset ready for its intended use. The auditor's view is that these improvements make the land ready for the building, thus classifying them as land costs. The consensus leans towards adhering strictly to accounting standards for accurate asset valuation.

sunil

sunil (Querist)
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10 August 2021 the capitalization of development cost of land like land filling, cleaning, grading, levelling are part of land cost or part of Building cost.
Assessee wants to make building for its own business purposes. He deals in food grains.

please clarify.

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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10 August 2021 Add it to building cost as levelling and filling is a prerequisite for construction of building.

sunil

sunil (Querist)
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10 August 2021 But as per AS 10 all cost incurred to make the assets ready for intended use should be capitalized as part of the assets cost. On this ground auditor insisting that land development cost should be part of land as it is being improved so that building can be formed on it. Kindly enlighten further.

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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10 August 2021 In such a case follow the accounting standards.

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