For capitalisation of assets

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CA Mohit kumar agarwal (Querist)
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03 October 2010 Dear all.
I have a specific query regarding capitalization of assets.I am explaining it through example:
I am constructing my house and for this i have purchased a tractor for Rs 400000/.Construction took place for 3 years and during the period depreciation on tractor comes to say Rs 200000/.
Total cost of Construction comes to Rs 5 lacs excluding the cost of tractor .
In my view ,depreciation charged on tractor i.e. Rs 2 lacs will form the part of cost of house and total cost of house will be Rs 7 lacs (5+2). This will bring the gross value of assets at the end of capitalization is Rs 9 lacs (& of house and 2 of tractor) .
Is it a right way or there will be another way of capitalization of assets. please suggest me.

aman kumar

aman kumar (Expert)
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04 October 2010 Dear Mohit
what you are doing is combining the two assets into one try to think this way tracter purchased as an seprate asset having its own identity and building constructed as an independent asset
and, when you capitalize house you can not see dep on tracter as cost for constructing house it is simply a cost of ware an tear of tracter and only 5laks are to be capitalized

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