Accounting treatment for erection and commissioning project ?
This query is : Resolved
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 ?
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 ?
05 January 2024
Is there erection and commissioning only...? or Purchasing of All the plant and machinery, furniture and etc.,?
22 January 2024
everything to purchased by the contractor. Its like Build and tranfer
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 |
| ------------------------- | -------------------------------------------------------- |
| 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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