Capitalisation of expenses

AS 1592 views 2 replies

Hi friends,

My question is that while construction of railway bridge, some utlities of other departments are shifted, for example Electricity, water department etc. Whether the shifting expenses to be capitalise or charged to revenue account. If it is to be charged to P&L, there is no maching revenue since the project is under progress. Let me know whether such expenses to be capitalised or charged to p&l acct. The shifted utilities are going to be an asset of respective department not the railway department. Please suggest me as early as possible.

Replies (2)

If u are the owner of the Asset

As per AS 10, in case of construction of an Asset, all directly attributable expense before the Asset is ready for Use is to be capitalised. There all Electricity Charges etc are to be capitalised.. 

 

If you are a Contractor constructing for some other Party 

AS 9 and AS 7 will be applicable.. Degree of completion method is to be used to book revenue and Expense. There fore if say 45% is completed, formulae will be (Estimated total Revenue less Estimated Total Cost ) * 45% 

 

AS PER AS 7
 
Contract Costs
15. Contract costs should comprise:
(a) costs that relate directly to the specific contract;
(b) costs that are attributable to contract activity in general and
can be allocated to the contract; and
(c) such other costs as are specifically chargeable to the customer
under the terms of the contract.
16. Costs that relate directly to a specific contract include:
(a) site labour costs, including site supervision;
(b) costs of materials used in construction;
(c) depreciation of plant and equipment used on the contract;
(d) costs of moving plant, equipment and materials to and from the
contract site;
(e) costs of hiring plant and equipment;
(f) costs of design and technical assistance that is directly related to
the contract;
(g) the estimated costs of rectification and guarantee work, including
expected warranty costs; and
(h) claims from third parties.
 
These costs may be reduced by any incidental income that is not included in
contract revenue, for example income from the sale of surplus materials and
the disposal of plant and equipment at the end of the contract.
 
 
AS PER AS 10 ACCOUNTING OF FIXED ASSETS 
 
Cost of  Self-constructed Fixed Assets
10.1 In arriving at the gross book value of self-constructed fixed assets,
the same principles apply as those described in paragraphs 9.1 to 9.5. Included
in the gross book value are costs of construction that relate directly to the
specific asset and costs that are attributable to the construction activity in
general and can be allocated to the specific asset. Any internal profits are
eliminated in arriving at such costs.

So according to me such expenses are to be capitalised.

 


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