Meet Mody (Student) (112 Points)
19 August 2013a firm has made payments for making furniture for its new office in the F.Y.2012-13, however the furniture was never put to use in the said F.Y. but put to use in the next F.Y. Can the firm treat these as Capital Work In Progress for F.Y. 2012-13?? if not, then why?
thanks in advance.
CA Simarpreet Singh Gulati
(Chartered Accountant)
(530 Points)
Replied 20 August 2013
A fixed asset shall be capitalised and depreciation is chargeable on it if they are "Ready to put to use". If the asset was ready to put to use in F.Y. 2012-13, it should be capitalised in that F.Y. only and cannot be treated as capital work in progress irrespective of whether it was put to use or not.
Best Regards,
CA. Simarpreet Singh Gulati
Meet Mody
(Student)
(112 Points)
Replied 23 August 2013
the payments mentioned above are advance payments for making the furniture, the furniture was not ready to put to use in F.Y.2012-13.
does it still attract depreciation or can it be classified as capital work in progress?
CA Simarpreet Singh Gulati
(Chartered Accountant)
(530 Points)
Replied 23 August 2013
In your case, you can treat it as work in progress. But no depreciation shall be charged on it as it is not yet capitalised. No depreciation can be charged on work in progress as per AS-6.
As per Accounting Standard 6, Depreciation Accounting Para 3.1..........
Depreciation is a measure of the wearing out, consumption or other loss of value of a depreciable asset arising from use, efflux of time or obsolescence through technology or market changes. In your case since the furniture is under construction, it will be shown under the head Fixed Assets as Capital Work in Progress but no depreciation will be charged.
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