Capitalisation of cost as per as 10

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Querist : Anonymous

Querist : Anonymous (Querist)

23 August 2012 Whether Agency Chrarges paid to C&F agent for his services can be Capitalised in Cost of fixed asset under compnies act...?

One of our client is importing Machinary & for custom clearing he is using services of Clearing & Forwarding Agent(C&F) for custom clearing & C&F agent gives his bill which comprises of following teo things :
1.) Reimbursable expenses which he has incurred on behalf of us such as Dock charges, transportation exp, loading - unloading exp etc.
2.) Charges for his Services which he has provided to us & he writes this charges in bill as "AGENCY CHARGES".

So now query is that whether this agency charges can be capitalized in cost of Fixed Assets as per AS-10 or not..?

Thanx in Advance...

Ahamed

Ahamed (Expert)
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23 August 2012 Accounting Standard 10:

Components of Cost

The cost of an item of fixed asset comprises its purchase price, including
import duties and other non-refundable taxes or levies and any directly
attributable cost of bringing the asset to its working condition for its intended
use; any trade discounts and rebates are deducted in arriving at the purchase
price. Examples of directly attributable costs are:
(i) site preparation;
(ii) initial delivery and handling costs;
Accounting for Fixed Assets 143
2 It may be noted that this paragraph relates to “all expenses” incurred during the period.
This expenditure would also include borrowing costs incurred during the said period.
Since Accounting Standard (AS) 16, Borrowing Costs, specifically deals with the
treatment of borrowing costs, the treatment provided by AS 16 would prevail over the
provisions in this respect contained in this paragraph as these provisions are general in
nature and apply to “all expenses”.
(iii) installation cost, such as special foundations for plant; and
(iv) professional fees, for example fees of architects and engineers.
The cost of a fixed asset may undergo changes subsequent to its acquisition
or construction on account of exchange fluctuations, price adjustments,
changes in duties or similar factors.
9.2 Administration and other general overhead expenses are usually
excluded from the cost of fixed assets because they do not relate to a specific
fixed asset. However, in some circumstances, such expenses as are specifically
attributable to construction of a project or to the acquisition of a fixed asset
or bringing it to its working condition, may be included as part of the cost of
the construction project or as a part of the cost of the fixed asset.
9.3 The expenditure incurred on start-up and commissioning of the project,
including the expenditure incurred on test runs and experimental production,
is usually capitalised as an indirect element of the construction cost. However,
the expenditure incurred after the plant has begun commercial production,
i.e., production intended for sale or captive consumption, is not capitalised
and is treated as revenue expenditure even though the contract may stipulate
that the plant will not be finally taken over until after the satisfactory
completion of the guarantee period.
9.4 If the interval between the date a project is ready to commence
commercial production and the date at which commercial production actually
begins is prolonged, all expenses incurred during this period are charged to
the profit and loss statement. However, the expenditure incurred during this
period is also sometimes treated as deferred revenue expenditure to be
amortised over a period not exceeding 3 to 5 years after the commencement
of commercial production.

Hence the agency charges is consider as an expenditure to bring the asset to destination and therefore it has to be CAPITALISED.