Anila (Article Assistant) (177 Points)
17 June 2011Hi frnds!!
When an expenditure is made by the company on a rented building, which is taken on monthly rental basis for a period of 5 year to be treated as capital or revenue?
Cost of expenditure is high and company is not the owner of the building
Expenditure incurred are: Flooring, cabins( Wooden and also cement)
How can this be treated??
CA ADITYA SHARMA
(CA IN PRACTICE )
(16719 Points)
Replied 17 June 2011
WOODEN CABINS MADE WILL BE TREATED AS CAPITAL EXPENDITURE UNDER FURNITURE AND FIXTURE
Rajnikant Vadigoppula
(CA, CS And CMA Final)
(919 Points)
Replied 17 June 2011
wooden cabin will be capitalised but all other maintenence expenses should be charged to revenue
Prateek
(B.Com(H) PGDBA CA Final)
(436 Points)
Replied 17 June 2011
Anila
(Article Assistant)
(177 Points)
Replied 18 June 2011
But what about flooring and other internal construction work meet by company to be treated as?
b'cos the amount invovled is very high and can anyone say which AS should i refer for this?
KUNAL DESAI
(B.com, ACA)
(41 Points)
Replied 20 June 2011
Hello Anila,
-If building is on a lease then flooring and all other internal construction work meet by the company should be capitalised in lessee's books of accounts(i.e. here company).
-and if it is rented premises then whole of the expenditure considered as revenue expenditure though it it is too high expenditure.
-You can refer AS-10( Accounting for Fixed Assets ) but as all the thing which i have wrritten here may not be mentioned in the AS but you can say that its a accounting principle.
Thanks and Regards,
Kunal Desai
Anila
(Article Assistant)
(177 Points)
Replied 20 June 2011
| Originally posted by : KUNAL DESAI | ||
 |
Hello Anila, -If building is on a lease then flooring and all other internal construction work meet by the company should be capitalised in lessee's books of accounts(i.e. here company). -and if it is rented premises then whole of the expenditure considered as revenue expenditure though it it is too high expenditure. -You can refer AS-10( Accounting for Fixed Assets ) but as all the thing which i have wrritten here may not be mentioned in the AS but you can say that its a accounting principle. Thanks and Regards, Kunal Desai |
 |
What other principle as a company can it adopt if it decides not to expense it off!
As it reduces the profit drastically??
KUNAL DESAI
(B.com, ACA)
(41 Points)
Replied 20 June 2011
helloo,
I can say that for the purpose of Accounting, you must have to debit whole of the expenditure to Profit & Loss Account since the AS-26 (Intangible Assets) becomes mandatory but yes you can create new account called " DEFFERED REVENUE EXPENDITURE ACCOUNT " for the purpose of Income Tax and
- can transfer amount partially to Profit & Loss Account systematically year by year till you enjoyed the benefit of asset.
- If you want to know the exact effectsthen you can read the article authored by CA Sanjeeva Narayan.
and the link is https://220.227.161.86/102061626.pdf
CAclubindia
