Treatment of Compensation to Contractor post Capitalization of Project

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.

 

Replies (4)
Quick Summary
This discussion addresses the accounting treatment for additional costs incurred after a project was capitalised under Ind AS 16. It covers how to handle legal expenses and compensation paid to a contractor, including options for creating provisions or directly expensing, and how to adjust the carrying amount of the fixed asset.

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.

Leave a Reply

Your are not logged in . Please login to post replies

Click here to Login / Register  

Company
ARTICLESHIP 29 August 2026
Article Assistant

RRPM & ASSOCIATES LLP

Chennai

CA Inter

View Details
Company
ARTICLESHIP 07 September 2026
Article/ Paid Assistant

Murali and Sumeet Chartered Accountant

Bengaluru

CA Foundation

View Details
Company
ARTICLESHIP 17 August 2026
Article Assistant

K R Kiran Kumar & Associates

Bengaluru

CA Inter

View Details
Company
ARTICLESHIP 14 August 2026
Article Assistant

N J Suresh & Associates

Bengaluru

CA Inter

View Details
Company
18 August 2026
Audit Assistant - Remote / Work From Home

CA ANOOP P K & ASSOCIATES

Kozhikode

CA Inter

View Details
Company
17 August 2026
Chartered Accountant with US GAAP Experience

Austin Med Solutions Pvt Ltd

Bengaluru

CA

View Details
Company
Featured 19 August 2026
Chartered Accountant

apricus india

Pune

CA

View Details
Company
08 September 2026
Audit Executive

Thammana & Associates

Srikakulam

B.Com

View Details