Following are some relevant concepts w.r.t Asset capitalisation
Source lines:
Source Lines basically refers to break up of an asset ie invoice line wise breakup, that is taken from accounts payable.
From the Invoice Batch, source lines that are relevant to the particular /asset are added to the asset cost through a system process called Mass Additions.
Added source lines will contain information on the following:
- Invoice Number
- Line number
- Purchase Order Number
- Supplier
- Cost of the asset
- Description of asset
- Asset ID
- Invoice Batch Source
Fixed Asset clearing account
On validation of invoice (asset item invoice), it is booked/recorded in payables invoice module with assignment to asset clearing account. This process credits the payables creating a liability and cost gets recorded in asset clearing a/c.
Asset is added through detailed or quick additions process, the credit is allocated to the asset clearing account and concerned asset account gets debited, capitalizing the asset.
Construction-in-Process
An asset is called as CIP asset when it is in its construction stage. spending relevant to the project/asset (raw materials and labor cost) are accumulated in the CIP, as and when it is incurred.
Depreciation is not chargeable on the CIP asset since it is not yet in use. Only when the construction or development of CIP asset is completely over, it can be put to use/ capitalised/ place it in service and can be subjected to later at the end of FY subjected to depreciation.