sunil sharma (15 Points)
09 June 2021
yasaswi gomes
(My grammar is 💯 good I)
(7290 Points)
Replied 09 June 2021
Some expenses such as power, lighting and heating may not be solely applicable to factory overheads, hence they are apportioned between factory, S & A expenses. Usually they are apportioned based upon n the floor area. Such purchase of lamps will be capitalised depends if they are directly used in production or maintenance or administration.
CMA Poornima Madhava
(CMA)
(13112 Points)
Replied 09 June 2021
yasaswi gomes
(My grammar is 💯 good I)
(7290 Points)
Replied 09 June 2021
It must be correct because they act as additions to ppe
yasaswi gomes
(My grammar is 💯 good I)
(7290 Points)
Replied 09 June 2021
As 10 suggests otherwise. Day to day operations costs are expensed. Replacement costs are capitalised. Considering the legal reality, lighting fixtures in the production plant are capitalised under site preparation.. now you purchased additional lights... Subsequent costs doesn't meet the criteria. But they can be treated as additions and included in carrying amount. They can also be considered as replacements and capitalised.
Subsequently, if the lights are for outside the production line, eg., Parking space, it is an expenditure.
CA Altamush Zafar
(GST Consultant)
(15971 Points)
Replied 09 June 2021
The basic principle on which all accounting standards are framed for capitalization is the matching concept.
Where the value of material is being matched with the revenue of multiple years then it is to be capitalized other wise not. That is why Plant & machinery is capitalised.
The second concept which needs to be checked after fulfilling matching concept it the immateriality concept. If the material fulfills matching to various FY but is not material then it should not be capitalised.
These are very grass roots concepts/principles on which all accounting standards be it Indian GAAPS, IFRS or US GAAPS are based. There may be variations in different accounting standards but they do not violate the principles.
yasaswi gomes
(My grammar is 💯 good I)
(7290 Points)
Replied 10 June 2021
All underlying accounting principles and costing principles are the same. Consider it like this as well direct costs are capitalised and indirect costs expenses. While abc costing technique allocates indirects costs into direct coats, it's just an evaluation to find out resource and overhead consumption per activity. Similarly, marginal costing is used for evaluation to derive internal profits eliminating indirect expenses, but every cost is absorbed into financial statements. However, eleigibility of capitalisation is based on direct costing and cost classification.
yasaswi gomes
(My grammar is 💯 good I)
(7290 Points)
Replied 10 June 2021
All underlying accounting principles and costing principles are the same. Consider it like this as well direct costs are capitalised and indirect costs expenses. While abc costing technique allocates indirects costs into direct coats, it's just an evaluation to find out resource and overhead consumption per activity. Similarly, marginal costing is used for evaluation to derive internal profits eliminating indirect expenses, but every cost is absorbed into financial statements. However, eleigibility of capitalisation is based on direct costing and cost classification.
CAclubindia
