A Company has taken a Building on Rent and started reconstruction works to convert it in to a hospital.
Building Rent per month is Rs.15.00 lacs.
The normal construction period is approximately 6 months. But because of the internal disputes between the directors, the project was delayed by 14 months. Rent paid during the said 20 months is Rs.3.00crores.
Company wants to capitalize the entire Rent. Can it capitalise the expense?
No... you cant capitalise the rent paid as it is not a borrowing cost. Its cost of carrying the asset. Its normal revenue expenditure. And only the reconstruction expenses can be capitalised if there is any ownership transferred for the reconstructed part for you. Else, its a maintenance expense since it is not your property.
Malhotra Rajesh & Associates
New Delhi
B.Com
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CCI
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