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Fixed Asset Cycle - CWIP

Hi there,
Our company constructing its own buildings and we would like to follow CWIP concept till the construction is over.
The components of these buildings are mainly items we buy such as (Steal, cement, etc)

Our concern is the sequence of the process to be followed, Purchase Invoice, and Creating the assets for the building?

Secondly, how is a purchase invoice is linked to the associated fixed asset?

Last, once the CWIP/Project is completed, by which step we can capitalize the asset cost under CWIP account to Fixed Asset account?

many thanks

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I have not tried the CWIP account for a building construction. When we are using the CWIP account for the regular asset items, CWIP account will be debited when we create the purchase receipt and will be credited when we submit the asset. But for the building construction, you are creating invoice for multiple items related to an asset. I don’t know if there is any way in ERPNext to handle the same. One manual way is to select the CWIP account whenever you create a purchase invoice. Once you finish the construction, you can manually create an asset and also pass a JV from CWIP to fixed asset account and the depreciation will start from the date you are giving in the asset.

Secondly, how is a purchase invoice is linked to the associated fixed asset?

I don’t see any strong relationship between fixed assets and invoices. I can create as many fixed assets for the same invoice as I wish, or leave the invoice with no assets at all. There are no restrictions or reports to do manual checking.

Hello @Saumyaseelan_Pv

I could not update CWIP account by a journal entry.

How to do it?

Regards

Hello @mburuin

I have the same issue. How did you solve it?

Regards.

Same here? Any thoughts on how to implement proper Capital Work in Progress (CWIP)?
Background how CWIP should work: http://accountingclarified.com/capital-work-in-progress-cwip/

I’ve done this before, though it’s been a few years so I can’t remember exactly how I did it. I think it was just a matter of creating a new asset account (CWIP, or whatever) and making sure that all Purchase Invoice items were booked with that as the expense head. Then, when it came time to create the depreciating asset, use that as the source. The UI terminology was a bit confusing at times, but the accounting all worked fine.

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Thanks @peterg! Do you remember if you created the fixed asset with “Is Existing Asset” checked? Otherwise, I would need to specify one purchase invoice (but there are several relating to the one asset).
How would you make clear that previous expenses related to the one asset (or did you calculate yourself the total purchase amount manually?)

I think the asset system worked a bit differently back when I did it. Now, the easiest way might just be to create a Purchase Invoice using the CWIP as the payment account. It’s a bit of a hack, but the accounting should work.

For calculating value, it was easy in my case because this was the only asset I was building. When I had all invoices in, I just set the value equal to the CWIP account balance. If you had more than one thing going at once, I suspect that using separate Projects would be a good way to keep track.

Thanks. This explanation helps!
If I understand you correctly this would be for example the process e. g. when building a house?

  1. Enter all associated costs via Purchase Invoice or Journal Entry individually (e.g. concrete, steel, wood etc.). Book everything on CWIP.
  2. Create a Purchase Invoice for the finished house with the total costs of all items (e.g. tracking via Project, get from CWIP or calculate manually). Paid with CWIP account (this way all costs will be transferred to the fixed assets account).
  3. Create Asset using the Purchase Invoice created in previous step.

Did I miss anything?

Yep, that sounds about right. It’s possible there’s something missing as I’m running on hazy memories, but the accounting all sounds correct. This or something close to it should work. The notional Purchase Invoice is a bit weird, but it makes a kind of sense too since you’re transforming an asset account balance into an asset object. Let us know how it goes!

Thank you! I’ll try that in the coming days.

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