Whether material to be used in construction of fixed asset to be grouped as inventory or fixed asset

The company is in the business of construction buildings and leasing them for use. Essentially, their revenue source is lease rent. Question is the material and furniture they purchase for construction of these buildings, which have not been used yet, should be recognised as inventory as per AS 2 or fixed asset as per AS 10 (Ind AS not applicable)? Thanks. 

Replies (5)
Quick Summary
This discussion explores the correct accounting treatment for materials and furniture purchased for constructing buildings intended for lease. The core question is whether these items, prior to use, should be classified as inventory under AS 2 or as fixed assets under AS 10. While some suggest classifying them under 'Construction in Progress' and capitalising them as fixed assets, others argue that since the company's primary income is from lease rent, not construction services, these materials should be treated as inventory.

Inventory..                          

In my opinion to be recorded as Fixed asset

You group them under CIP (Construction in progress) and capitalize it once it is used in building as a Fixed asset  if your business was other rather then construction.   but since you main source of income and venture is construction of building it should be treated as Inventory.

Originally posted by : Harsha Shetty
You group them under CIP (Construction in progress) and capitalize it once it is used in building as a Fixed asset  if your business was other rather then construction.   but since you main source of income and venture is construction of building it should be treated as Inventory.

No the main and only source of income is LEASE RENT, not construction service or sale of building.

Investment property. Treat it as inventory. 

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