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Editorial Board on Accounts and Audit
  • Building demolished and New building constructed

    by Rajesh on Tuesday, October 15, 2019 at 01:29 PM

    An entity acquired land alongwith building and later demolished the old building and constructed a new one on it useful for the business. What should be the treatment of the cost of the old building. Whether the cost of demolished building be continued considering as cost of land or to reduce the cost of the old building and effect the profit and loss a/c. Kindly advice

    Replied byEditorial Board Saturday, October 19, 2019 at 11:25 PM

    Para 74 of AS 10 provides that the carrying amount of property, plant and equipment should be derecognized on disposal; or when no future economic benefits are expected from its use or disposal. The gain or loss on derecognition, being the difference between disposal proceeds & carrying amount of the asset, shall be recognised as income or expense in statement of profit and loss.

    In your case, the old building has been demolished for the purpose of construction of new building. Considering the above provision of para 74, the carrying amount of old building should be debited to profit or loss for the period in which the building is demolished.

    For further clarification, you may refer the following link:

    https://accountsandaudit.taxmann.com/filecontent.aspx?Page=AAAGROUP&search=&ID=800110000000001144&tophead=true

    The above link has discussion based on old AS 10, Accounting for Fixed Assets. Even though you may get some clarification.

 
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