Accounting for Assets not owned by us

Cost Accounts 4404 views 2 replies

Dear all,

 I want to know the accounting of capital expenditure incurred by company but the assets not owned by company X.

Company X  wants to extent its Power KV Lines for electricity, For that Sub station plant is to be created.

Now that substation plant is owned by company but for that plant some additionl KV lines to be put by electricity company and that expenditure is to be borne by company X.

Now wt should be the accounting for capital expenditure incurred on additional KV Lines of which Company has neither  ownership nor control over it.Infact,they line may be used to provide electricity line to anyone in future i.e. handled by electricity board.

Options for Accounting Treatment,

1) Capitalise Substation plant and KV Line cost(Ref AS 10 to put asset in working condition i.e . to put substaion plant in working condition)

2) Write off as Rev Exp.

3) allocate cost of KV lines over assets made from substation plant.

3) Shown in SCH of FA as assets but as a note that asset not owned by company(Ref of guidance note on construction period )

Pl reply which option is best with reason.

 

 

Replies (2)
dear sir, according to my opinion, option 4 would be the ideal treatment in this case. it also conforms to the recommendations of GN on expenditure during construction period. the ideal treatment would be to capitalise KV lines also but it should be so described in the balance sheet that it would be clear that this capital expenditure is not represented as any asset owned by the company. this cap. exp. will be written off over a period of 5 years. please share your opinions on the above issue.. with regards Kaustuv
Dear Kaustuv, ( Pl dont say sir to me..u can call darshan) Thanks for Reply. It was case of one of the company and finally it was decided to Go for Option 1 Option 4 was eliminated because that guidance note is only for construction period. Now this we cant say as construction period. And Accounting Standard Overrides Guidance Note hence we decided to go for Option 1 Anyway,Thanks for sharing your thoughts, Thanks, Darshan Mehta


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