CAPITALISTION OF BUILDING

[PANKAJ GUPTA]

Dear Sir,

Our unit (manufacturing Company) is under construction on newly land purchased and we have constructed the substantial part (70 percent ) of Building and obtained Occupancy Certificate from concerned department for this part of area in F.Y ended 31.03.2014. Now, our balance area is under construction and this time we have not installed any plant & machinery and planning to purchase machines in current F.Y. 2014-15.

We have incurred many expenses in F.Y. 2013-14 and transferred to preliminary expenses.

We want to shown our Building construction cost in Capital work in process in B. sheet as at 31.03.14, since we have to capitalized preliminary expenses in Plant & Mach. and Building at the time of Commencement of production and our building to be fully completed till time.

Is this mandatory to capitalized Building cost in B. sheet as at 31.03.14 because we have taken Occupancy certificate for that part or we can differed this for next F.Y.

Please give suitable reply as per latest changes in depreciation rules in company act.

Thanks & Regards

Pankaj Gupta

Faridabad

M-09212401641

[CAGOPALJI AGRAWAL]

First of all, no expenses in the nature of preliminary expenses can be carried forward after introduction of AS-26. Second once the building is ready to use, it should be capitalized. 

AI Summary

Capitalisation of building costs: preliminary expenses cannot be deferred and completed portions must be capitalised once ready for use. Preliminary expenses of the described nature cannot be carried forward under the applicable accounting standards and must not be capitalised. Costs for portions of a building that are completed and ready for use should be capitalised as fixed assets, while costs for unfinished areas should remain in capital work-in-progress until they meet capitalisation criteria; depreciation follows upon capitalisation.