Amazing no change in definition under Indian GAAP and Ind as, but interpretation is changed under Ind AS-
There is no change in the definition of asset and other direct cost eligible for capitalisation under Ind As and Indian GAAP but view is changed
This article explain in detail how same definition is interpreted differently-
Cost of fixed asset
As per earlier AS 10 – Para 9.1 The cost of an item of fixed asset comprises its purchase price, including import duties and other non-refundable taxes or levies and any directly attributable cost of bringing the asset to its working condition for its intended use; any trade discounts and rebates are deducted in arriving at the purchase price.
As per Ind as 16 Para 16(b) cost of fixed asset
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.
If we compare the both the definition there is no change, earlier also it is written that all expenditure incurred to bringing the asset to its working condition for its intended use is part of cost of fixed asset.
But earlier when the query raised regarding the expenditure on asset not owned by corporation raised by various company it was answered as follows-
Committee is of the view that the expenditure incurred on widening and construction of road on the land which is not owned by the company does not meet the definitions of the terms ‘asset’ and ‘intangible asset’. Accordingly, such expenditure cannot be capitalised as an intangible asset..( EAC opinion published in CA journal August 2016)
So the above expenditure is charged to revenue and not eligible for capitalisation.
But when the again query is raised under Ind as regime same is answered as follows (Refer Ind As bulletin 2 – Issue no 5)
Issue 5. Company X has incurred expenditure on construction of a road on the land Which is not owned by the Company. Whether the expenditure incurred on construction of such a road by the Company has to be capitalized or expenses out under Ind AS?
Response: The capitalization of expenditure incurred on construction of assets on land not owned by a company would depend on facts and circumstances of each case, particularly, considering paragraph 16(b) of Ind AS 16, Property, Plant and Equipment (PPE), which states that such an expenditure should be necessary for making the item of PPE capable of Operating in the manner intended by the management.
We are unable to understand that, if there is no change in definition of asset and elements of cost in Ind as and Indian GAAP then why one expenditure which is not eligible for capitalization under Indian GAAP become eligible for capitalization under Ind AS.