Accounting Treatment of Additional Capitalization Arose Due to Arbitration Award

An item of property, plant, and equipment (PPE) that qualifies for recognition as an asset should be measured at its cost. This cost includes the purchase price and any directly attributable expenses necessary to bring the asset to the location and condition required for its intended use. Any costs not included in this definition should be charged to the Profit & Loss account.

Additionally, any changes to the carrying value of the PPE resulting from new information or developments should be treated as a change in estimate, rather than a correction of errors. The effects of this change in accounting estimate will be recognized prospectively, affecting profit or loss in the relevant period.

In this story, we have discussed the accounting treatment in the company’s books regarding the additional costs arising from the arbitration award.

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