Capitalisation of CWIP

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Muralidharan (Querist)
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28 May 2009 The company in which I work was incorporated in the year 1996. The value of fixed assets as at closing of previous financial year (31.03.2008) was Rs.23.40 crores. Out of which plant & machinery is Rs.18.76 crores, building Rs.2.24 crores, other assets such as land, electrical equipment, tools & jigs, furnitures, computers...etc are Rs.2.40 crores, thus totalling to Rs.23.40 crores.

From the year 2005 onwards the company spent money on a new project. The amount spent for this new project is Rs.1.70 crores and the same was kept under Capital Work in Progress pending capitalisation. The project was completed, trial runs made and the company has commenced sales on this new project. The company intends to capitalise the CWIP during the year 2008-2009.

It is proposed to apportion and capitalise the CWIP of Rs.1.70 crores on the existing entire plant & machinery and building.

Some of my colleagues say that the CWIP of Rs.1.70 crores can be apportioned and capitalised on the plant & machinery specifically acquired for this new project.

Can the forum members guide me with their valuable reply how to capitalise the CWIP. Kindly give me a detailed reply touching on basis of accounting and accounding standards that are required to be followed in this connection

with regards

Muralidharan

jegannath G

jegannath G (Expert)
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28 May 2009 Yes your colleagues are correct.

The CWIP of Rs.1.70 crores can be apportioned and capitalised on the plant & machinery specifically acquired for this new project. As per AS 10, any expenses directly related to the project alone can be capitalised along with the fixed assets.

Hence any expenses in the cwip which are not in the nature of assets will have to be apportioned to the fixed assets which are related to this project

taxindiaconnect

taxindiaconnect (Expert)
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28 May 2009 A well explained answer, I Absolutlay agree with Jegannath G on this.

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