Accounting treatment of certain administrative expenditure incurred during the construction phase
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- Last Updated on 24 August, 2021
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Ind AS 16 Property, Plant and Equipment (PPE) states that only those items of costs can be measured as cost of PPE which are directly attributable in bringing an asset to the present location and condition necessary for it to be capable of operating in the manner intended by the management. Para 17 of the standard illustrates few examples of directly attributable costs which among other things includes, costs of employee benefits (as defined in Ind AS 19, Employee Benefits) arising directly from the construction or acquisition of the item of property, plant and equipment, professional fees, etc.
During the construction phase of an asset, it is not necessary that all the items of expenditure will be capitalized to the asset being constructed. These may include certain administrative and general overheads. Let say, a company has incurred certain expenditure like certification fees, employee benefits relating to Key Management Personnel, certain statutory dues, etc. during the construction phase of the plant. As per Ind AS 16, what should be the accounting treatment in respect of above expenditure? Whether these should be capitalized as a part of cost of PPE or should, it be expensed in the statement of profit and loss?
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