Depreciation can be charged to Construction in Progress (CIP) or directly to depreciation expense
Client’s Requirements:
During the construction period, all costs related to the construction of Property, Plant, and Equipment (PPE) should be recorded under Construction in Progress (CIP), with the appropriate asset classification. This includes the depreciation of any Fixed Asset utilized in the construction process, such as heavy equipment and machinery. The depreciation expense of these assets is capitalized as part of the total cost of the asset under construction.
Sample Journal Entries:
Recording of Progress Billing (PB):
Dr. CIP
Cr. Accounts Payable / Cash
Recording of Asset upon Receipt of Property Acknowledgment Receipt (PAR):
Dr. Fixed Asset
Cr. CIP
Recording of Depreciation (during construction):