Accounting treatment of construction of facilities for import of additional requirement of power

The management of the entities generally faces an issue in the accounting treatment of the expenditure incurred for the construction of infrastructure facilities to import additional power for meeting the power requirement of the present as well as the proposed expansion of the project, if any, in the financial statements of the entity i.e. Whether such expenditure is capital or revenue expenditure for the entity. The Expert Advisory Committee of ICAI has provided its opinion in this regard.

The committee noted that the first issue to be examined is whether an individual asset (tangible or intangible) may be recognised in respect of such expenditure and hence reference to the relevant provisions of Ind AS 38 and Ind AS 16 were provided in this matter.

The Committee further provided that in order to meet the definition of intangible assets as per the requirements of Ind AS 38, three conditions should be fulfilled, viz., identifiability, control over a resource, and the existence of future economic benefits. Whereas, to recognise the expenditure as an individual tangible asset, it is necessary that the resultant infrastructure facility is owned and operated by the entity, which will result in future economic benefits for the Company and the cost for the same can also be measured reliably.

Click Here To Read The Full Story