Our company has acquired Land Developement rights of Urban land for 8 Crore. Ownership had not been transafered in the name of company. Please let me know, whether same will be account for as fixed assets or will be treated intangible assets under AS 26. Please reply.
26 November 2012
You can capitalise this. Any right associated with immovable property is also regarded as immovable. You can group it under fixed asset. It will not attract any depreciation unless the property for which the developement rights go under some unforeseen events like reservation, extinguishment etc.
26 November 2012
I may not agree with expert. Any right acquired shall be intangible asset and such shall right shall be amortised over the period for which rights are available.
26 November 2012
Yes. CA Kishore's view is also tenable within the four corners of LAW. Thank you Kishore. The courts have taken the view as A. developement Agreement as such AND B. Developement Agreement in the disguise of as such. In the first instance it is not ASSET whereas in the second instance it is regarded as ASSET. sec 53A of transfer of property act has been viewed as KEY factor. i.e. possesion of the urban land under developement agreement. Your views please, Kishore and Abhijit.
26 November 2012
According to GN on real estate transactions states following accounting method:
----------------------- "Transferable Development Rights
7.1 Transferable Development Rights (TDRs) are generally acquired in different ways as mentioned hereunder:
(a) Direct purchase. (b) Development and construction of built-up area. (c) Giving up of rights over existing structures or open land.
7.2 When development rights are acquired by way of direct purchase or on development or construction of built-up area, cost of acquisition would be the cost of purchases or amount spent on development or construction of builtup area, respectively. Where development rights are acquired by way of giving up of rights over existing structures or open land, the development rights should be recorded either at fair market value or at the net book value of the portion of the asset given up whichever is less. For this purpose, fair market value may be determined by reference either to the asset or portion thereof given up or to the fair market value of the rights acquired whichever is more clearly evident.
7.3 When development rights are utilised in a real estate project by an enterprise, the cost of acquisition should be added to the project costs.
7.4 When development rights are sold or transferred, revenue should be recognised when both the following conditions are fulfilled:
(a) title to the development rights is transferred to the buyer; and (b) it is not unreasonable to expect ultimate realisation of revenue."
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But it does not cover stand alone acquisition of Development rights. I think this this is part of fixed assets only as nowhere in GN it has been mentioned that development rights have to be account for as Intangible assets. But I require more opinion on this.
CAclubindia
