Accounting treatment for erection and commissioning project ?

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This discussion clarifies the accounting treatment for a plant erection and commissioning project where ABC Pvt Ltd handles the entire process for B Ltd. The key queries revolve around how ABC Pvt Ltd should account for the expenses (as WIP or contract asset), when and how to book revenue (monthly upon plant readiness), the timing of asset transfer, and the valuation and depreciation start date for B Ltd. The consensus suggests treating it as a construction WIP for ABC, booking revenue monthly post-operation, transferring assets after 12 months, and recording the asset at the total contract value for B Ltd, with depreciation commencing from the date of use.

CA Abhishek Singh

CA Abhishek Singh (Querist)
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04 January 2024 B ltd (aluminium manufacturer) is going to erect a plant. It is planning to outsource entire erection and commissioning work to ABC pvt ltd with following terms & conditions

1. entire expenses of erection and commissioning to be borne by ABC pvt ltd
2. B ltd will not pay any amount untill plant is ready for operation
3. After plant is ready for operation B ltd will pay ABC Pvt ltd 20 lacs every month for 12 month
4. After 12 months entire rights pertaining to assets to be transferred to B Ltd

My Query ?
1. what will be the accounting treatment of erection and commissioning expenses in the books of ABC pvt ltd - i.e Fixed assets or stock ?
2. How revenue 20 lacs every month will be booked after plant is ready for operation ?
3. when and how assets should be transferred by ABC pvt ltd to B ltd.
4. At what price asset will be recorded in the books and From which date B ltd will be able to claim depreciation ?

RAJA P M

RAJA P M (Expert)
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05 January 2024 Is there erection and commissioning only...? or Purchasing of All the plant and machinery, furniture and etc.,?

CA Abhishek Singh

CA Abhishek Singh (Querist)
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22 January 2024 everything to purchased by the contractor. Its like Build and tranfer

Aashok Kumar Sharma online

Aashok Kumar Sharma

(Expert)
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13 August 2025 | Query | Treatment |
| ------------------------- | -------------------------------------------------------- |
| 1. ABC Pvt Ltd accounting | Construction WIP (inventory / contract asset) |
| 2. Revenue Booking | ₹20L/month for 12 months upon use/start of transfer |
| 3. Asset Transfer | After 12 months or upon use (contract dependent) |
| 4. Asset in B Ltd books | Recorded at ₹2.4 Cr; depreciation starts from usage date |

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