Cost Incurred to Maintain Status Quo of Construction Site of Warehouse Not to Be Capitalized

Para 16 of Ind AS 16 requires that the cost of an item of property, plant and equipment includes its purchase price, including import duties and non-refundable purchase taxes and any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management.

Further, para 22 requires that the cost of abnormal amounts of wasted material, labour, or other resources incurred in self-constructing an asset is not included in the cost of the asset.

This story discusses where a legal dispute is initiated by the previous owner of the land and the construction of the warehouse by the company is halted indefinitely by the court. The company is incurring an additional cost to maintain the status quo of the warehouse site. It is interesting to see whether the cost incurred by a company to maintain the status quo of the construction site of the warehouse is required to be capitalised to the cost of the asset or not.

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