Question

How do you account for a project under construction? Provide an example ?

Answer 1

If a company is constructing a major projects such as buildings, Machine etc. they are not yet completed at the year end i.e, they are not ready for use. The amount spent on that project should be recorded by classifying them as work in progress account under long term assets. Work in progress account is reported under property plant and equipment in balance sheet. After the completion of the project the amount in work in progress is transferred to the concerned asset account.