Determining Asset Readiness | The Crucial Role of Commissioning Dates in Depreciation Accounting Under Ind AS 16
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- Last Updated on 22 November, 2023
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A company has floated a tender for the construction of the plant and machinery. The plant is commissioned three years from the tender date and a certificate of commissioning by the company to the contractor is issued a few days later from the date of commissioning. The contractor is also required to perform the performance guarantee test as required under the contract and finally handed over the plant to the company after completion of the test and denoted that date as the “plant taken over date”. The accountant of the company has capitalized the plant on the date of taken over i.e. after completion of all activities as required under the contract.
After reading para 20 of Ind AS 16, Property, Plant and Equipment, which states that recognition of costs in the carrying amount of an item of property, plant and equipment ceases when the item is in the location and condition necessary for it to be capable of operating in the manner intended by management, the auditor objected to the date of capitalization of the plant in the books. As per the auditor, the company should have capitalized the asset on the date on which the certificate of commissioning was issued by the company.
The company approached the Expert Advisory Committee for their opinion regarding the date of capitalisation of plant in the books of accounts.
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