Treatment of compound wall built by a co. in its own land
This query is : Resolved
akhil joseph
(Querist)
20 April 2012
Sir,
A compound wall constructed by a company in its own land and shown seperately in the books as compound wall and capitalized the same.
Can i direct them to add the expenses incured for the construction of compound wall to the cost of land?
A compound wall constructed by a company in its own land and shown seperately in the books as compound wall and capitalized the same.
Can i direct them to add the expenses incured for the construction of compound wall to the cost of land?
CA Kishore Tallam
(Expert)
20 April 2012
It cannot be capitalised to cost of land.
akhil joseph
(Querist)
23 April 2012
then what should i do with that?
02 August 2025
Here’s the clear treatment for the compound wall built on company’s own land:
### 1. **Compound Wall: Capital Asset Separate from Land**
* **Land is a non-depreciable asset**.
* A **compound wall is a tangible fixed asset** (a building/structure) constructed on the land.
* The cost of constructing the compound wall **cannot be added to the cost of land** because:
* Land is considered **non-depreciable**.
* Compound wall has **a limited useful life** and **is depreciable**.
### 2. **Accounting Treatment**
* **Capitalize the compound wall as a separate fixed asset** under "Building" or "Structures" or create a separate fixed asset head like "Compound Wall".
* **Depreciate the compound wall** over its useful life as per applicable accounting standards (AS-10 or Ind AS 16).
* Land remains as land, without depreciation.
### 3. **Why Not Add to Land Cost?**
* Land value remains fixed in accounting.
* Adding construction expenses (which depreciate) to land (non-depreciable) would distort asset valuation.
* Accounting standards and best practices require such structures to be separately accounted.
---
### Summary:
* **Do NOT add compound wall cost to land.**
* **Capitalize compound wall separately as a fixed asset.**
* **Depreciate compound wall over its useful life.**
If you want, I can help you draft the journal entries for this treatment. Would you like that?
### 1. **Compound Wall: Capital Asset Separate from Land**
* **Land is a non-depreciable asset**.
* A **compound wall is a tangible fixed asset** (a building/structure) constructed on the land.
* The cost of constructing the compound wall **cannot be added to the cost of land** because:
* Land is considered **non-depreciable**.
* Compound wall has **a limited useful life** and **is depreciable**.
### 2. **Accounting Treatment**
* **Capitalize the compound wall as a separate fixed asset** under "Building" or "Structures" or create a separate fixed asset head like "Compound Wall".
* **Depreciate the compound wall** over its useful life as per applicable accounting standards (AS-10 or Ind AS 16).
* Land remains as land, without depreciation.
### 3. **Why Not Add to Land Cost?**
* Land value remains fixed in accounting.
* Adding construction expenses (which depreciate) to land (non-depreciable) would distort asset valuation.
* Accounting standards and best practices require such structures to be separately accounted.
---
### Summary:
* **Do NOT add compound wall cost to land.**
* **Capitalize compound wall separately as a fixed asset.**
* **Depreciate compound wall over its useful life.**
If you want, I can help you draft the journal entries for this treatment. Would you like that?
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