What is the Treatment of 1st time Insurance Premium which pay when car purchased. Wheather it would be capitalised as per AS-10 or charged to P&L as revenue Expenditure.........................
ravi chetani (CA Final) (46 Points)
21 October 2010What is the Treatment of 1st time Insurance Premium which pay when car purchased. Wheather it would be capitalised as per AS-10 or charged to P&L as revenue Expenditure.........................
Vivek Raju P
(Manager)
(614 Points)
Replied 29 December 2010
Typically first time insurance is required to bring the car on the road and will fall under the category “any directly attributable cost of bringing the asset to its working condition for its intended use” and may be eligible for capitalisation.
However the insurance will be only for a period of one year and hence this will have to be amortised over a period of one year just like prepaid expenses. Including this amount in the cost of the car will lead to it being depreciated over a period of say 5 years. Which in effect means you are carrying the insurance expense of 1 year and amortising it over 5 years. Which is not acceptable.
So the insurance expense has to be expensed off.
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