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Capital goods

Preeti (Consulting) (159 Points)

13 March 2008

Hi,

Please let me know how the capital goods accounting works.

How we differentaite between date of purchase/capitalisation/put to use.

Does this dates make any differnence how we make entry in books ?

Thanks.

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5 Replies

pRaSoOn (Articled assistant) (500 Points)
Replied 13 March 2008

Since you have raised the query i hope you know what are capital goods. So i will start with accounting part: After completion of purchase placement cycle(that cycle varies from company to co.,but the general way is purchase request fo capital good is generated and sent to purchase dept., they subsequently agree upon the price and credit terms etc. and place the order with supplier)....supplier sends the good to company..Now, Date of purchase :The date on which purchase order/requisiton was sent to vendor. Date of capitalisation : The date on which accounting for capital goods is over,i.e. it appears in the balance sheet as asset. Date of put to use : It is the date from which the asset is actually used.

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pRaSoOn (Articled assistant) (500 Points)
Replied 13 March 2008

Now, the date of capitalisation should ideally be when the goods enter the premise of the co. but it is not placed directly in asset register,i.e.it is not directly capitalised....its first of all, entered in CAPITAL WORK IN PROGRESS A/C...that means the asset has entered the premise but in process of start to usage...like the goods maybe needed to greased and oiled first etc..as soon as the asset is started to use...the amount of purchase value of capital good should be transferred from CAPITAL WORK IN PROGRESS A/c. to respective asset A/c. and subsequently depriciation etc. should be provided...

pRaSoOn (Articled assistant) (500 Points)
Replied 13 March 2008

Remember all the costs(direct or indirect) incurred in bringing capital good to its usage place should be added to its cost...and depriciation should be provided from the date the capital good is actually put to usage...

pRaSoOn (Articled assistant) (500 Points)
Replied 13 March 2008

phew i spent 15 min. just typing and typing....i hope it helps...if i am wrong somewhere do tell me but thats the whole procedure..

V P Narasimhan (Accounts Manager) (791 Points)
Replied 22 July 2009

Dear all

I wud like to share whatever I hv come across in this. Date of Purhcase means date of Invoice. Fox eample U might have purchased a machienry but U will install after a month or so. How will U calculate the capitalisation in case of Income tax a/c or company act a/c. So, date of installation is most importatnt (virtual usage starts) If the fatory is in another location where machinery has tobe installed with the help of Manufactures with proper guidence definetely it takes time, So also calculatin depreciation period. If its an imported machienry & it has to be insatalled in your fdactory other than your state imagine homw many channels it has to cross. Expenses occured including foreign currency flutuation, freight, insurance etc., etc will be added and tghus arrived a final figure which is called Landed Cost. The asset landed at your destination after covering so many costs which has tobe considered.