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Srinath (Querist)
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10 March 2011 QUESTION 1

A newly set up Private Company has incurred the following expenditure during construction period..Please classify as Capital or Revenue:

Sundry Expenses such as stationery , Printing, postage, telephone & local conveyance.

ANSWER IN PADUKA PUBLICATIONS

They constitute an expenditure indirectly which is indirectly related to construction & HENCE capitalized..

IS THIS CORRECT??

QUESTION 2

A minor fire occurred to a machinery cost of repairing is 5000/- estimated.
But company instead used new technology to replace burnt part with new part which will increase efficiency..total cost 50000/-

ANSWER IN PADUKA PUBLICATIONS

Entire 50000 should be capitalized.

I feel only 45000(50000-5000) should be capitalized.

Please assist.

Thank you

K R Srinath

Kiran Daftary

Kiran Daftary (Expert)
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11 March 2011 Reply to your 1st Question YES.

Reply to your 2nd Question `Only if the estimated useful life is increased' the expenditure gets qualified for capitalisation, otherwise total amount needs to be treated as Revenue expenditure'.

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Nikhil Kothari

Nikhil Kothari (Expert)
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18 March 2011 Reply to your 1st question:

As per me those expenses are preliminary expenses and thus it should be spread for 5 year, claiming 1/5th each year.

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