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Capitalization of building costs

15 December 2008 6,930 views No Comment

All,

We are constucting a new building in our factory for which we of
course capitalize all the costs involved. However to build the new
building we had to tare down the old building that still had some book
value. Does anyone know if we would be able to capitalize the
bookvalue of the old building as part of the costs to construct the
new building or do we need to take the old book value directly to P&L?

Best regards,

John



You can capitalize demolition costs themselves, but need to write-down
the Book Value of old building, because its not the part of new Fixed
Asset.



If there are recoveries from the old building such as scrap or any
other salvage value, it should be offset against the loss from
write-off of the old building.



Dear John
Here in this case the assset(your old building) is no more in
existence, hence it can be written off. However for arrivng at the
cost of new building all costs incurred to erect the new building can
be capitalised. So in this case one can add the cost of the old
building (may be the book value) to the cost of the new building.

please inform me about other opimnions an dyour final accepting of the isssue.

regards



Dear John,

The book value of asset is not cost incurred
for constructing the new building. It is a
historical cost & sunk one. If the building is
demoloised it means the asset is useless &
obsolute hence can be written off.

Thanks.



Dear John,

The cost of the old building is embedded in the cost of the
construction of the new building, in addition to any land preparation
in between, simply we can’t cnstruct the new building without
incurring the dirct cost of what is prior to that phases.

Regards

Moh’d



Best regards,
All,Thank you for all your reply’s, they have been most helpful.John

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