Accounting Treatment

953 views 5 replies

Navin Agarwal

Audit Executive

96 Points Posted on 13 June 2011

Facts of the case:

A power generating company incurred huge expenditure on technical feasibility, research, survey, design and DPR reports initially planning that they will set up 210 mw capacity plant then changed their plan to set 600mw and finally now company is setting 660mw plant. AND IT IS WORTH MENTIONING THAT EXPENDITURE INCURRED ON 210MW OR 600MW COULD NOT BE USED IN 660MW PLANT. Further, as per AS-10 expenditure only directly attributable to the project can be capitalized. Whether expenditure incurred at the time when company planned for setting 210mw and 600mw plant should be capitalized or charged to revenue.

Replies (5)

CA Sameer Suman

Job

112 Points Posted on 13 June 2011

Should be charged to revenue account as it will not entail any future benifit to the company as such they had changed their plan to set up a plant of 210 mw and 600 mw plant and Expenditure incurred on 210MW OR 600MW could not be used in 660MW Plant.

CA ADITYA SHARMA

CA IN PRACTICE

16719 Points Posted on 13 June 2011

Originally posted by : Sameer
	Should be charged to revenue account as it will not entail any future benifit to the company as such they had changed their plan to set up a plant of 210 mw and 600 mw plant and Expenditure incurred on 210MW OR 600MW could not be used in 660MW Plant.

yes agreed

Rajnikant Vadigoppula

CA CS And CMA Final

919 Points Posted on 13 June 2011

Company can capitalise the expenditure

Remember due to feasibility and other report, one can understand the requirement of plant.

so it is incurred for plant itself mere change in capacity cannot deny capitalisation

rachit jain

chartered accountant

635 Points Posted on 13 June 2011

i agreed with Mr. rajnikanth. it can be treated as revenue exp only in case of plant is scrapped. mere changing of capacity will not will not make it non capital goods.it will still be used in 660MW capacity plant.