Treatment of Cost of Building Purchased for Housing Workers Engaged in Construction of Plant

A company has decided to construct a manufacturing plant for its business. Due to unavailability of housing resources in the backward area, the company has decided to purchase a residential building which is to be used for housing the workers engaged in the construction of the plant. Further, the company has raised a loan from the Bank to purchase the building. Ind AS 16 does not provide direct guidance on this matter, however, the recognition criteria to capitalize an item of PPE requires that probable future economic benefits associated with PPE will flow to the entity and cost can be measured reliably.

In this story, we have discussed whether to capitalize expenditure to purchase the building will be capitalised separately or capitalize in the cost of the machine along with the treatment of borrowing cost associated with it.

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