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Treatment of demolition of building

sumathy sundararajan (Manager Finance and Accounts) (68 Points)

10 September 2012

Hi friends,

I have a doubt in accounting this_

A pvt limited company has acquired a land along with a building from a firm in the month July 2011. It has demolished the building before 31st march for constuction another building, now how should I value the fixed asset on 31 march? How should I account the demolition cost?

Regards,

Sumathy

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Bhaskar Unnikrishnan CPA CMA (Accounts / Administration) (414 Points)
Replied 10 September 2012

There may be two scenarios:

Domolition as Land Cost: If the existing building was decided to be useless or no intention to use, at the time of acquisition of land the demolition cost can be capitalised to Land cost.

Demolition as Building Cost: If the existing building is demolished to build new building, the cost of such demolishion can be capitalised to new building cost.