Good Morning to All,
My Query is w.r.t Ind AS 16 PPE,
My company has capitalized the Project cost 2 year back and depreciation is being charged. Contractor has filed the case demanding additional cost incurred by them and the matter has been decided in favor of contractor. Now,
Query:
1- Treatment of Legal Expense incurred by my company.
2- Treatment of additional amount paid as Compensation to contractor towards project cost.
Please help me with this.
If your following IndAS 16,
you can create a provision
Legal fee expense Dr.- this is not directly attributable to PPE.
To bank a/c
and create a provision
Fixed asset- additional costs paid
To provision liability
then when you made the payment duly:
Provision liability a/c
To Bank a/c
this can be created as per IndAS 37.10(appendix) as you have a legal obligation.
Thank you for your reply,
One more thing, what if we had not made any provision in the books regarding this. Plz guide in this also
Your correct because sometimes creating more provisions is restricted. So,
Fixed Asset-> new costs
Legel expenses a/c
To bank a/c
no provision is required and also, how you treat the new carrying amount of the PPE depends upon your decision. You can make retrospective=changes and change all the balances or start depreciating the costs from current year. This treatment is ok because I don’t remember reading anything about this in PPE standard and if I do, I’ll reply back, Txs
Thank you so much sir.
Rahul Dang & Associates-Chartered Accountants
Pune
CA Inter
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R P S K & Associates
Nashik
CA Inter
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