09 April 2008
My friend has bought a truck's chasis for Rs.8,00,000/- under HirePurch agreement with Magam Leasing. He has paid following approximate amounts soon after purchase:- Body of Truck 70,000/- 1st Insurance 18,000/- Registration 15,000/- 1st Road Permits 15,000/- Also the Financer had debited Rs.95,000/- towards the Hire charges. Can all these expenses (Chasis, body, 1st insurance, 1st road permits, registration, Hire charges) be capitalised in the cost of truck.
09 April 2008
Exp incurred in connection with the acquisition of the asset till it is put to use shall be utilised. Hence, total exp shall form part of cost of asset.
However, if the hire charges incurred before the asset put to use,only then it has to be capitalised.
09 April 2008
Thanks, Hire Charges in case of Hire Purchase agreements are calculated once for the entire term of Hire Purchase (2 or 3 years) - say 3.5 or 4.2 percent (like interest) of finance amount and included in Finance amount while working out the monthly instalment dueand this total amount (Finance amount + hire charges) is termed as "Contract value" . Also the insurance and Road Permits are recurring expenditures to be incurred annually. Please suggest expalnatorily about their capitalisation.
CAclubindia
