Determining the Timing for Capitalization in Integrated Irrigation Projects Under Ind AS 16
- Blog|News|Account & Audit|
- < 1 minute
- By Taxmann
- Last Updated on 1 December, 2023
A government-owned organization involved in irrigation projects in the Krishna river basin finished the initial stages of a significant project before switching to new accounting standards known as Indian Accounting Standards (Ind AS). The switch brought challenges in how to account for canals under these new standards. Specifically, in the last phase of the project, which includes constructing Field Irrigation Canals (FICs) in shorter segments without following a specific order. This situation poses a dilemma about when to consider the project ready for the purpose of capitalisation.
Even though the units of canal seems usable, the question arises whether the company can independently capitalise them in its accounts, following guidelines outlined in Ind AS 16, or it should wait until the completion of the entire project, especially the FICs. The central issue, in this regards relates to deciding the right time in capitalising these irrigation assets in the financial records.
This story explores the dilemma and discusses the detailed insights from relevant provisions in Ind AS 16 and 23, as well as the opinions of the Expert Advisory Committee, to guide towards a conclusion.
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