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Sunstance over form-leased bldg for school


Ankit (C.A.-Student)     14 March 2013

Ankit
C.A.-Student 
 22 likes  675 points

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Framework for the Preparation and Presentation of Financial Statements issued by ICAI states:

Substance Over Form

35. If information is to represent faithfully the transactions and other events that it purports to represent, it is necessary that they are accounted for and presented in accordance with their substance and economic reality and not merely their legal form. The substance of  transactions or other events is not always consistent with that which is apparent from their legal or contrived form. For example, where rights and beneficial interest in an immovable property are transferred but the documentation and legal formalities are pending, the recording of acquisition/disposal (by the transferee and transferor respectively) would in substance represent the transaction entered into.

 

 

 

 

 

 

 

 

 

Mostly it covers area of Financial Lease or Sale and lease Back(SLB) but i want to ask treatment of present situation in books of accounts

 

 

A firm has taken a lease of building for 9 yrs to run pre nursery school. After obtaining  necessary approvals it start working on improvement of building like apart from normal wall paint, creative painting say cartoon chararcters, flowers etc ,  advance security system (bio metric card) , lift, flooring furnishing, AC, many variety plant/flowers from nursery etc.

 

How to show all this expense, whether capitalise under building or through any other method???

 

 Please help

 

 

 

 

 

 

 

 

 

 

 

avater

Siddarth R Sunder Ram (Finance Professional)     14 March 2013

Siddarth R Sunder Ram
Finance Professional 
 27 likes  230 points

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I think you'll have to capitalise them as leasehold improvements and depreciate it over the nine year lease period.


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