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Treatment of the cost of sample flat

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This query is : Resolved

BHASKAR AUDDY (Querist)

09 May 2011 One of our client is in the business of the real estate development and sale. At the beginning of the project they construct a sample flat to show the prospective customers- its nature and the area etc.

Usually after the construction of the whole flat anf handing over to the customers, this flat is being demolished. The area on which the sample flat was there is being used for other purpose.

What will be the treatment of the cost of the sample flat? It will be added to the cost of the other flats being constructed or its cost is being charged off in the revenue statement?
Client is of the view that after the demolising the sample flat some thingh is being reusable?- waht will be the ttreatment of that?

Amol Gopal Kabra (CA,CS,DISA)

Amol Gopal Kabra (CA,CS,DISA) (Expert)

09 May 2011 The expenditure so incurred should be charged to revenue. Even if the demolished material is reusable, we have already paid the cost of the same. If we use the material for some other use, there is no impact on cost of the same. So, the sample flat should be charged to revenue.

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