Amount to be capitalised with asset or not

This query is : Open

Querist : Anonymous

Querist : Anonymous (Querist)

25 June 2018 One of my client has purchased building for Rs. 95 lacs and had deducted tds and paid balance the amount to the builder. Now, the builder account is 0. The sales deed was also for Rs. 95 lacs. Now on scutinizing the accounts, it came to light that the property which was purchased - token for purchases was given to the builder by another party ABC for Rs. 10 lacs but ABC couldn't arrange the funds and finally the property was purchased by my client after my client paid additional Rs. 10 lacs to ABC for purchase of the property and getting their NOC. Now, let me know whether i shall get Rs. 10 lacs accounted for in building account ie capitalise the amount or shall book as expense as the same amount paid is no where mentioned in the sales deed.

Please guide as to correct accounting treatment.

CA Bhavna Shah

CA Bhavna Shah (Expert)
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25 June 2018 As per the declination of capital assets,any amount paid to put the asset to its present location and condition should be capitalized. In the present case Rs. 10 lacs were mandatory to be paid to acquire NOC and use the asset hence it should be added to the capital cost of the building.

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