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Editorial Board on Accounts and Audit
  • Disposal of asset during construction

    by Naman on Wednesday, July 31, 2019 at 05:24 PM

    Company is installing shed to cover new factory building whose construction is going on. Whole shed was constructed and was made in Rs 60. However as the quality was not good, it was dismantled and scrap was sold for Rs 6. Again new shed was constructed for Rs 70.this was all done before capitalisation of building. Will cost of FA will be 70 and 54 will be loss on asset (revenue/capital). Or will cost be 124 (70+60-6) ?

    Replied byEditorial Board Monday, August 05, 2019 at 08:42 PM

    With reference of your query, it seems that the shed is qualified for recognition as fixed asset in accordance with AS 10, Property, Plant and Equipment.

    As per AS 10, a fixed asset shall be derecognized from the books either on disposal or when no future economic benefits are expected from its use or disposal. Whenever, an asset is derecognized, any gain or loss, being difference between the carrying amount and amount realized on disposal, shall be recorded as income or expense in the statement of profit and loss.

    Hence, in your case, the carrying amount of shed (i.e. Rs. 60) dismantled less amount realized on scrap sale (i.e. Rs. 6) shall be recorded as other expense in statement of profit and loss. The new shed shall be capitalised at Rs. 70.

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