Fixed assets accounting (it + companies act)

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LIJO PHILIP (Querist)

21 October 2015 Sir / Madam,

Say for example, We are constructing a Hotel which includes 1) building work called super structure + internal finishing and 2) Moveable items like Kitchenwear + LED TV's etc.

The first work is awarded on 01/10/2014 for building work called super structure + internal finishing and it continued till 30/09/2016, all bills related to this were processed in CWIP for two FY. On 01/12/2014 a Purchase Order was raised to procure 50 LED TV's and it was received on 01/01/2015.

Query :- How & When will we capitalize the LED TV and the entire CWIP cost as LED TV's or any moveable assets are bought one & half year prior to completion of entire structure.

Thanks,

CA Kumar Mukesh

CA Kumar Mukesh (Expert)

21 October 2015 Under Companies Act, we need to capitalized (date from which Depreciation charged) asset on the date of asset ready to use.

However under Income Act, we need to capitalized Asset only when asset ready to use.

You need to understand diff between ready to use and actual put to use.

Therefore, having said so,for your main query all asset including moveable as well as buiding need to capitalized only after the completion of construction.

Thank you...

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LIJO PHILIP

LIJO PHILIP (Querist)

21 October 2015 Sir, Thanks a lot for the valuable information shared.

I have a query on this. If the Completion or Put to Use Date is 30/09/2016 and we received a Final bill (say 10% of cost) of Super Structure work after 07 months from 30/09/2016 (in next FY) due to internal reasons for delay. How we should treat with this 10% Final bill in Current FY ending.

Thanks,

CA Kumar Mukesh

CA Kumar Mukesh (Expert)

21 October 2015 Hi you need to capitalized all expenses on the date of completion of Construction, even though last bill of contractor is still pending.

In that case of you need to capitalized fixed asset by creating of expenses payable.

This observation is based on substance over form (Accounting Principle.

Thanks You...

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