Property, Plant and Equipment

The Company has made payment to Office of State Road Division for construction of bridge which shall be used by the Company for movement of its heavy vehicles. The bridge shall be open for all and not limited to use by the Company only. As the Company is currently using an alternate route for movement of its heavy vehicles, the Construction of the bridge, which will be shortest route, involves direct economic benefits to the Company. Whether the payment made by the Company can be capitalized as PPE under IND AS 16.

Replies (3)
Quick Summary
This discussion examines whether a company's payment for a bridge, intended for its heavy vehicles and open to the public, qualifies as Property, Plant, and Equipment (PPE) under IND AS 16. While costs to bring assets to their working condition are capitalisable, the bridge's public accessibility and potential classification as an intangible asset, charity, or CSR initiative are debated. The consensus leans towards capitalising the bridge as a fixed asset, considering its separate identifiability, control, and future economic benefits (cost savings), aligning with principles for site preparation, installation, and professional fees.

All the costs to move things to complete the finished goods can be capitalised into PPE. But the bridge can be classified either as an intangible asset, charity or can be used to show as CSR initiative. The choice is yours.

However, the expenditure incurred after the plant has begun commercial production, i.e., production intended for sale or captive consumption, is not capitalised and is treated as revenue expenditure even though the contract may stipulate that the plant will not be finally taken over until after the satisfactory completion. So, I’m using intangible asset standard capitalisation rather fixed assets PPE standard because there is identifiability- saperately identifiable from other assets, control- as you can show that you are controlling that bridge and no one can demolish it, Future economic benefits- in the form of cost savings, 

@ Gaurav sry yesterday I did not have so much time to read the complete AS and I did that today

The nature of bridge is separately identifiable and hence, Any addition or extension, which has a separate identity and is capable of being used after the existing asset is disposed of, is accounted for separately. This means the bridge will work even after disposing main components of PPE, so it needs to be treated as a separate class of asset and the costs cannot be included in the gross block value. 

AS is somehow unclear and complete treatment is given. Using this principle, you reco*ise bridge as a fixed asset and add costs to fixed assets in relation  to 

(1)site preparation;
(ii) initial delivery and handling costs;
(iii) installation cost, such as special foundations for plant; and
(iv) professional fees, for example fees of architects and engineers.

(5) sometimes admin and general overheads are included based on the standards scope

 

your incremental borrowing costs will be dealt by that relevant standard. Hope this clarifies.

 

 

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