Factory on Lease

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chintan sodha (Querist)
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20 March 2009 Dear Sirs,

If we are running facory on rented primises should expenditure made to construct the addittional store room within the rented primises shoul the expenditure made capitalise or debited to profit & loss account ?

Please advice.

thanks,

Chintan

CA Devanshi Gandhi (Ajani)

CA Devanshi Gandhi (Ajani) (Expert)
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20 March 2009 it should be capitalized as AS does not say that it should be owned fixed asset for improvement.
following is the extract from AS-10 :

12. Improvements and Repairs
12.1 Frequently, it is difficult to determine whether subsequent expenditure
related to fixed asset represents improvements that ought to be added to the
gross book value or repairs that ought to be charged to the profit and loss
statement. Only expenditure that increases the future benefits from the
existing asset beyond its previously assessed standard of performance is
included in the gross book value, e.g., an increase in capacity.
12.2 The cost of an addition or extension to an existing asset which is of a
capital nature and which becomes an integral part of the existing asset is
usually added to its gross book value.Any addition or extension,which has a
separate identity and is capable of being used after the existing asset is
disposed of, is accounted for separately.

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