while calculating accounting ratios, where to include capital-in-work progress?
can it be part of Property, plant and equipment(PPE)?
thanks in advance
dear Prof Potharla,
Capital work in progress is a long term asset, so the answer to your question is yes it can be with PPE, however it can NOT be depreciated until it is not in progress anymore.
best,
I agree with Haritt - but it depends on how you interpret say the accounting standards
eg IAS 16
I would say in most cases yes, it qualifies for PPE, but it depends.
"IAS 16 states that the cost of an item of property, plant and equipment shall be recognized as an asset if, and only if:
- it is probable that future economic benefits associated with the item will flow to the entity; and
- the cost of the item can be measured reliably.
This recognition principle shall be applied to all costs at the time they are incurred, both incurred initially to acquire or construct an item of property, plant and equipment and incurred subsequently after recognition to add to, replace part of or service it. "
So even if the asset is under construction, if the future economic benefit is likely , you can put it into PPE.
But this will depend upon the particularly companies or governments standards.as well as that proposed by the auditor eg KPMG - "The auditor should also specifically verify the date on which the assets are moved from the capital work in progress account to the fixed assets (the date on which the asset is ready for intended use), so that the depreciation on fixed assets may be computed correctly. "
http://in.kpmg.com/knowledge_update/Guidance-Note-Audit.pdf
Welcome to the world of accounting - Thats why I stick to real cashflow
Hope that helps
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