Development charges - conversion charges

1)Expenditures related to land may fall in two broad categories. One category includes expenditures related to land upon its acquisition; these are expenditures to prepare land for its intended use. The other category includes improvements to land subsequent to its acquisition.

2)Land related expenditures in the first category are usually included in the cost of land acquired. This treatment is consistent with the generally accepted accounting principles stating that costs related to preparing an asset for its intended use are to be included in the cost of that asset. Thus, when a company buys land and needs to remove an old building from it or developing land, the removal costs (less any salvageable items) are added to the cost of land acquired.

Note that land is recorded on the balance sheet in a separate account called Land. Land is a separate asset within Property, Plant, and Equipment. Land is not depreciated because it does not have an expected useful life. Therefore, any land related expenditures in this category will stay on the balance sheet and will not be depreciated.

In the given case you can capitalise development cost.

Hi, This is highly debabtable issue. It all depends on certain considerations 1) what benifit is accruing due to conversion 2) whether the accruing benifit is for long term or short term. If the conversion lead to allowablity of constructon of manufacturing plant then it could be argued that it is an additional cost to land where as converse can also be argued that it is just an improvement in title and as such no long term benifit accrued. You need to go into reasons why the conversion of land was required as per that act. As far as my opinion on the limited info available i would go with that its just an improvement in title and not an additional cost of land hence an expense and not to be added to cost of land. But let me put a disclaimer that there can also be converse arguement which is equally strong. So to avoid future litigation steps have to be taken carefully.