Learn Accounting Entries For Capital Work In Progress On Your Own:

Capital Work in Progress refers all expenses incurred or the cost of work performed/completed in the construction or development of an asset until it is completed or converted into working condition. It refers to the construction, development or installation of a new asset or works that result in an improvement to an existing asset. When an asset is completed and it is ready to work, all costs incurred will get transferred to the relevant asset account.

Although Capital Work in Progress is treated as a non-current asset, it is neither depreciated nor made subject to revaluation until the asset is completed and put into use.

Accounting Treatment For Capital Work-In-Progress:

Construction or development costs that relate to future activities, including any advance payments do not reflect work performed and therefore are not part of Capital (WIP). Accordingly, materials purchased for use in Capital but not used at the reporting date are not included in the cost of work performed to date.

If the asset is not completed at that time when balance sheet is prepared, all costs incurred on that asset up to the date of balance sheet is to be transferred to an account called Capital Work in Progress Account. This account is to be shown separately in the balance sheet below the Fixed Asset. Capital Work in Progress Account contains all expenses incurred on the asset until it is completed and converted into working condition. All these expenses incurred will become part of the cost of that asset.

When any expense is incurred or paid, it is included in the Capital Work in Progress Account with the following entry:

Work In Progress A/c-----------------------Dr.

            To Cash/Bank/Payable A/c

When an asset is completed and it is ready for use, all incurred costs will be transferred to the relevant asset account with the following entry:

Asset A/c-----------------------Dr.

            To Capital Work In Progress A/c