Determining the Point of Asset Capitalization – A Dispute Between Company Management and Auditors
- Blog|News|Account & Audit|
- 2 Min Read
- By Taxmann
- |
- Last Updated on 31 July, 2023
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The date or point when an asset can be considered to be in the location and condition necessary for it to be capable of operating in the manner intended by the management as per the requirements of Ind AS is a matter of technological assessment and judgment, which the Company should exercise itself in its specific facts and circumstances, considering various factors such as technical parameters, safety parameters, various pre-requisite and substantive approvals from competent authorities, completion of test runs to ensure that the asset is functioning properly, etc. Owing to the various steps involved in setting up an asset, the management believes that capitalization of an asset is only after obtaining an Asset Commissioned Certificate from the company’s engineers.
However, the auditor has a different stake for capitalization that it should start from the date of Safety inspection by the concerned state authorities and Issue of the Safety certificate as the asset is in the location and condition necessary for it to be capable of operating in the manner intended by the Management; and asset needs to be categorized as PPE and depreciation should be charged from the date of issue of Safety Certificate.
The two different opinion as to date or point of capitalization for the asset under construction as Property, Plant, and Equipment from Capital-Work-in-Progress has created a dispute between management and the auditor. In order to resolve the matter, the management has approached the EAC for its opinion.
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