Capitalisation of fixed assets

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Pratik Kumar (Querist)
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30 December 2011 I am conducting an audit of a company and I have some doubt about the capitalisation of fixed assets.

The company purchased sand, cement and other building material for factory building and it has been capitalised.

It is not clear whether it is used for repair or addition in the factory. But we found an invoice of a contractor for a huge amt used for addition in storage area, that amount is capitalised and we found other invoices of building material of small amount.

So pls suggest whether the small amount of building material should be capitalised or charged to P&L account.

Mahesh Paryani

Mahesh Paryani (Expert)
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30 December 2011 Dear Pratik

With reference to accounting standard.

The cost incurred which increase the life of an asset or the production capacity of an asset should be capitalise.

Therefore in my opinion in your case neither it increases its life nor it increases its production capacity therefore it should not be capitalise.

Regards