The proponent company is setting up a plant for and have purchased materials for constructing the fixed assets say for e.g a company has purchased 10000 bags of cement for construction of power plant. How do we need to classify the cement bags? whether the same need to be classified as 'Capital Work in Progress' or as 'Inventory'?
Please reply
Dear Sir,
Till the time materials are consumed, they will continue tom appear as "Inventory"
From "consumption" to "construction of asset" - Capital WIP
And thereafter "Fixed Assets"
As per definition given in AS-2
Inventories are assets:
(a) held for sale in the ordinary course of business;
(b) in the process of production for such sale; or
(c) in the form of materials or supplies to be consumed in the production process or in the rendering of services.
And hence material purchased for construction of plant cannot be classified as inventories.
In my opinion unused bags of cements should be shown under the head CAPITAL WORK IN PROGRASS as unused material.
i agree with Mr. Goyal, it should be shown as CWIP not as inventory
CAclubindia
