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Demurrage Charges accounting treatment?

Praveen (CA Final (new scheme)) (123 Points)

26 April 2011

I want know whether Demurrage charges incurred should be capitalised to the asset cost or it should be write off to the P/L Account. As these charges are something which relate to inefficiency of an organization rather to a handling charges which is described AS-10.

As per my view it should not be capitalised but I want to know a reference Para no of AS/ AS Interpretation, any guidance note or any other statutory requirement.

Praveen Kumar

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5 Replies

U S Sharma (glidor@gmail.com) (21056 Points)
Replied 26 April 2011

demmurage charges is not an independent expenditure, it incurs with transportation / godown rent etc, and this is always accounted as clubbed with respective heads where from the original expense incurs.

Praveen (CA Final (new scheme)) (123 Points)
Replied 26 April 2011

Originally posted by : U S Sharma
	demmurage charges is not an independent expenditure, it incurs with transportation / godown rent etc, and this is always accounted as clubbed with respective heads where from the original expense incurs.

did you mean it should not be capitalised, if so can you give any reference to this.??

satish kumar Chauhan (accountant) (344 Points)
Replied 02 June 2011

all exps incured up to the premises/godwn/works, dr to related expenditure a/c in case of raw material to to inward freight a/c, in the case of fiexd assets dr to fixed asstets a/c or other case in concernd a/c

prerna (student) (91 Points)
Replied 07 June 2011

it willbe capitalised AS 2 STATES all the exp incurred to bring the asset to current position and location is 2 b capitalised , without y=this exp CUSTOMS wil not leave the goods

demurrage

to cash

stock

to demurrage

closing stock will go up

kamal gupta (11 Points)
Replied 22 December 2018

As per the guidance Not by ICAI, Demurrage and penalties are abnormal cost and are not part of the material cost. It is charged to Profit & Loss Account.