I Have Transferred My Factory From Panipat TO SOnipat Whether Re- Erection Charges Can Be Capitised Or NOt?
Also Interst On Loan Taken Speciaaly FOr THis Purpose (AS-16)
Ramya Kinthali
(Financial Consultant)
(108 Points)
Replied 18 January 2011
re erection charges as a result of shifting plant....
it should not be capitalised...
to capitalise as per AS-10 it must be incurred to bring asset into usable state , asset is already used , its only the change in place, and also there is no increase in capability as the asset is same,
Devendra
(Chartered Accountant)
(4775 Points)
Replied 18 January 2011
Re-Erection charges are to be capitalized. The Interest charged should be debited to Profit and Loss A/c.
Regards,
Devendra
Suresh Prasad
(www.aubsp.com)
(15630 Points)
Replied 18 January 2011
| Originally posted by : munny | ||
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I Have Transferred My Factory From Panipat TO SOnipat Whether Re- Erection Charges Can Be Capitised Or NOt? Also Interst On Loan Taken Speciaaly FOr THis Purpose (AS-16) |
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First of All Read Carefully these Para of Relevant AS:
Para 23 of AS 10: Subsequent expenditures related to an item of fixed asset should be added to its book value only if they increase the future benefits from the existing asset beyond its previously assessed standard of performance.
Para 6 of AS 16: Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset should be capitalised as part of the cost of that asset. The amount of borrowing costs eligible for capitalisation should be determined in accordance with this Statement. Other borrowing costs should be recognised as an expense in the period in which they are incurred.AS-10
Now. The exp. incurred for the erection (i. e. installation) of Plant And Machinery is Capitalised. Depreciation is charged on total cost of P & M including erection exp.
The exp. incurred for dismantaling plant and machinery in order to shifting the same to different location is treated as Production Overhead. However, when heavy exp. is incurred, it should be treated as Deffered Revenue Expences and spread over reasionable periods. And if re-erection charges arises due to abnormal situation it should be charged to Costing P/l account.
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ISHA.
(Chartered Accountant)
(105 Points)
Replied 19 January 2011
| Originally posted by : ramya kinthali | ||
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re erection charges as a result of shifting plant.... it should not be capitalised... to capitalise as per AS-10 it must be incurred to bring asset into usable state , asset is already used , its only the change in place, and also there is no increase in capability as the asset is same, |
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Ageed............. Interest charges to be trf to P/L a/c
Vidhya
(111 Points)
Replied 19 January 2011
The expenses for shifting the machine and building of a new foundation in addition to the cost of dismantling and re-erection do not contribute to any new future benefits from the existing asset. They only serve to maintain performance of the machine. Hence, this cost should be charged to revenue.
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