Question ID : 40746

CAPITAL/ REVENUE

A partnership firm acquired a leased property(land and building) through public auction under SARFAESI Act. The original term of lease is for 84 years, the balance term is 77 years. The firm paid Rs. 4 crore to bank(for both land and building) and 1 crore(for land only as building was constructed by first lessee) to Govt. Industrial Park(Lessor). No other lease rental are payable. The ownership property is vested with Industrial park(lessor). After lease term they can renew the lease agreement for further 30 years. What is the treatment of Rs.4 crore paid to bank and Rs.1 crore paid to lessor? Whether to capitalise or treat it as revenue expenditure? If it is to be capitalised, can we amortize this amount or can we claim only depreciation on building?

posted by Babitha on Jul 30 2020 12:00AM