with performance of capital construction in a form of new construction as well as reconstruction, extension and technical further equipping (hereibafter referred to as “the construction”);
with purchase of buildings, constructions, equipments, transport means and other individual projects (or their parts) of fixed assets;
with purchase of land plots and natural resourses sites;
with acquisition and formation of intangible aseets.
Capital construction by efforts of outside contractors and using own resources
Capital expenses result in formation of non-current assets (fixed assets) on the objects of construction and assembly works after putting these objects into operation grounded by corresponding acts and in cases of necessity with drawing up of Certificate of State Registration of Title for real estate.
At reflecting of real estate item in the accounting statements as the item of fixed assets, the amount of actual expenses for its formation accounted as capital investments in this item makes up initial value of the item of fixed assets:
on real estate items purchased from previous owners under purchase contracts, barter contracts, lease contracts etc. – after registration of transfer of property right for the item in the authority of State Registration of real estate transactions;
on real estate items built by the Company and its subdivisions by a constructor or independenly – after submission of set of documents following the Registration of property rights for the item;
on fixed assets included in the construction estimates (meant for use in built objects) – after putting into operation of the whole construction object;
on fixed assets not requiring assembly – after the item is submitted from supply subdivision to operating subdivision. If the operating division puts the received item in warehouse, so it is reflected in the accounting reporting as the item of fixed assets in store (in reserve).
Accounting of investments in non-current assets is kept on the construction as a whole on individual objects of investments.
Construction object is insulated builing or construction, type or complex of works which construction demands drawing up of design estimate documentation.
Construction object is considered with all relating arrangements, equipment, furniture, inventory, auxiliary and support devices as well as if necessary with the attached utility facilities and general site works (leveling operation, improvement, planting etc.).
Account of expenses is kept on a cumulative total from the beginning of construction of the item in section of accounting periods up to putting the items into opeartion or full production of corresponding works. Builder (customer of construction) keeps accounting of expenses on the account «Investments in non-current assets».
The builder is a legal entity possessing a land plot on property or tenant rights and taken the decision to implement a program on construction of a complex of objects on this land plot, determining the methods of financial support of construction and performing work coordination for the program implementation.
Construction in progress is the expenses of a builder for construction of objects from the beginning of construction up to putting into operation, accounted as capital investments on the account «Investments in non-current assets».
Accounting of construction in progress is kept:
on construction as a whole;
on individual turns;
on individual construction objects;
on technological structure of expenses for construction objects.
Expenses for individual construction object are grouped according to technological structure of expenses determined by estimate documentation for the corresponding object.
Technological structure of expenses provides for, in particular, expenses:
for construction works;
equipment installation works;
acquisition of equipment surrendered for assembly;
acquisition of equipment not requiring assembly, tools and inventory, equipment requiring assembly but meant for constant reserve;
other capital expenses.
Capital investments in the form of construction (reconstruction, upgrading) of projects independenly are reflected in the accounting statements monthly, as far as they form on the account «Investments in non-current assets» monthly.
Capital investments effected in the course of capital nature works performed for the Company by an outside contracting organizations are are reflected in the accounting statements as far as they are effected on the grounds of completion certificates and settlement documents.
Accounting of transactions relating to share construction of objects
There are two variants of conclusion of contracts of share construction of objects:
The Company enters joint activity, which subject is object construction. A distinguishing feature of such contract is that under this contract all parties either invest monetary funds, so actually participate in the construction to one extend or another;
The Company invests funds or accumulates funds of other persons for the object construction. In this case only one of the parties actially deals with construction (builder-customer), another party (parties) invests monetary funds to gain required results, it is the investor.
In the first case parties’ relationship is reflected in accordance with the procedure established for joint activity.
The Company’s investment in joint activity is reflected on the account «Financial investments. Investments under simple partnership agreement». Receipt of investment and expenses for construction are booked on a separate balance of joint activity of a party liable under the contract.
Upon completion of construction the Company forms accounts payable relating to complete capital investments due to it, which are reflected on the account «Investments in non-current assets». Thus, putting of an object into operation comleted by construction (in the part belonging to the Company under the contract conditions) is reflected in the Company’s accounting reporting. This item of fixed assets being the property of two or more organisations is reflected in fixed assets of the Company in proportion to its share in the total value of the object.
In the second case the Company’s actual investments (transfer of monetary funds or other property) are reflected in long-term accounts receivable on individual account «Settlements with different debitors and creditors » (including payment for services of a customer-builder).
If the Company fulfills obligations of a customer-builder, so other investors’ money received by it is reflected as long-term accounts payable. In this case extra payment for the Company’s services (over expenses amount for construction) relating to supervision of construction and other works is reflected by the Company on sales record accounts (the account «Sales»).
Upon completion of construction these expenses are transferred to investors (according to their share) for reflection of these expenses in the capital investments and their further crediting in fixed assets.
Accounting of interests on loans and credits borrowed for purchase and/or formation of non-current asset
In order to estalish accounting procedure of capitalized expenses in terms of interests on borrowed loans and credits the Company allocates investment assets among objects of investments. Investment assets mean property items which preparation for intended use requires much time as well as considerable expenses for acquisition and (or) construction (asset complexes and other similar assets) which will be then accepted to the accounting as fixed assets (including land plots), intangible assets or other non-current assets.
Interests on borrowed loans and credits which are directly intended for acquisition and (or) construction of an investment asset are to be included into the cost of this asset and redeemed by means of accrual of depreciation, except for cases, when accounting rules do not provide accrual of asset depreciation.
Interests on borrowed loans and credits are included in the investment assets value uniformly notwithstanding conditions of loan (credit). Interests on borrowed loans and credits can be included in the investment assets value basing on conditions of loan (credit) in case, when this inclusion does not differ significantly from uniform inclusion.
Extra expenses on loans can be included in miscellaneous expenses uniformly within the loan (credit agreement) term.
Interests on borrowed loans and credits connected with formation of investment asset, on which depreciation is not accued, are not included in the cost of such asset, but referred to the current expenses of the Company (are recognized as other expenses).
Interests on borrowed loans and credits incurred prior to start of operations related to assets formation are not included in the cost of investments in the non-current assets, but referred to miscellaneous expenses of the Company.
In case of suspension of works connected with investments in the non-current assets within the term exceeding three months inclusion of expenses on borrowed loans and credits in the volume of capitalized expenses is suspended from the first day of a month next to the month of suspension as well. In this case interests on loans are referred to the current expenses of the Company among miscellaneous ones.
The period within which additional settlement of technical and (or) organizational issues arisen in the process of the asset consruction is performed is not considered as termination of works related to investment asset formation.
At resumption of works connected with investments in non-current assets, interests due to payment to a loaner (creditor) are included in an investment asset value from the first day of a month next to the month of resumption.
Interests due to payment to a loaner (creditor) cease to be included in an investment asset value from the first day of a month next to the month of ceasing of acquisition, construction and (or) production of an investment asset.
If funds of loans (credits) received for the purposes which are not connected with acquisition, construction and (or) production were spent for acquisition, construction and (or) production of an investment asset, interests due to payment to a loaner (creditor) are included in an investment asset value proportionally to a share of the specified funds in total amount of loans (credits) due to payment to a loaner (creditor) received for the purposes which are not connected with acquisition, construction and (or) production of such asset.
The assets, in relation to which the following conditions are fulfilled simultaneously, are recognized as the fixed assets of the Company:
it is supposed the use them in the production outputs, when executing work or services rendering or for management needs for a long period (of useful life exceeding 12 months or normal operating cycle, if it exceeds 12 months);
capability to provide economic benefits (income) in future as well as the following resale of mentioned assets is not assumed by the Company.
The assets regarding which the above mentioned conditions are fulfilled and which cost is up to the amount of 20000 rubles per a unit are reflected in accounting and reporting in composition of business inventories except for the objects of power grid facilities (power transmission lines, transformer substations) and the motor vehicles. In order to provide the safety of these objects in operation and when using the control for their movement is organized in the Company. These objects are accounted in quantitative terms.
The Company does not recognize objects to be the fixed assets relating to which the decision on alienation in favor of other persons (resale, exchange etc. is meant) was taken at their inclusion for the accounting (at the moment of qualification). In this case the object is qualified by the Company as the goods.
Objects which are not intended for sale with life time more than 12 months for which participation in processes of manufacturing or in management processes as well as gaining of economic benefits from their use cannot be sufficiently reasoned are considered to be included in the fixed assets separately as nonproductive fixed assets. Depreciation accrued on the mentioned items of the fixed assets as well as mentioned objects service expenses are recognized to be the current expenses without recognition for the purposes of taxation on income tax.
Inventory item of fixed assets is the item with all devices and facilities or constructively isolated object intended for definite independent functions.
Should one or several objects of the same or different intentions are isolated complex of cunstructively joined objects that have general devices and facilities, general control, assembled on the same foundation, resulting in that each object can fulfill its function only in structure of a complex, the complex as a whole is reflected in the accounting reporting as the inventory object.
If one inventory object has several parts of different useful life, each such part is accounted as an independent inventory object notwithstanding the fact whether this part can fulfill indendent function or not.
Essentially different useful life means relation of composed parts of a fixed asset to different depreciation groups.
The following objects are accounted as independent inventory objects:
capital investments in rented items of fixed assets;
capital investments for radical land improvement (drainage, irrigation and other melioration works);
shares of items of fixed assets, being in the share property of the Company and other (others) owner (owners) (organisations).
Computers can be accounted as a separate constructively isolated item with its own number or as the item consisting of separate objects (system unit, monitor etc.), each of them has its own inventory number.
Fixed assets are entered in accounting records at initial cost, determined depending on receipt way – acquisition for payment, formation using own resources (construction), non-payable receipts etc.
Initial cost of fixed assets acquired for payment is the amount of actual expenses of the Company for acqisition, construction and production (excluding value added tax and other indemnifiable taxes)
Actual expenses are:
amounts payable by suppliers in accordance with delivery contract;
amounts payable by extrior organisations for services relating to property delivery from warehouses (including rail tariff);
amounts payable to organisations for information and consulting services connected with acquisition of fixed assets;
customs duties and customs fees;
non-recoverable taxes, state duty as well as payment for state technical inspection payable in connection with acquisition of an item of fixed assets;
remunerations payable to an intermediate organisation through which an item of fixed assets has been acquired;
expenses for commissioning works, individual testing of separate types of machines and mechanisms, complex testing of all types of equipment and technical installations for the purpose of checking quality of their assembly, conducted «idle»;
other expenses connected directly with acquisition, construction and production of an item of fixed assets and conditioning of them to the state, in which they are fit to use (e.g. expenses for opening of a letter of credit for acquisition of fixed assets, business trip expenses, including those that are over standards established by the law, if they are connected directly with acquisition of fixed assets).
Estimation of an item of fixed assets, which value at acquisition is expressed in foreign exchange, is performed in rubles by means of recounting of foreign exchange amount at the rate of the Central Bank of the Russian Fedetation acting for the date of acceptance of an item to accounting as investments in the non-current assets.
Handling of items of fixed assets between the branches of the Company is reflected on the account 79 «Intra-organizational settlements». In this case value of fixed assets and sum of accumulated depreciation are reflected.
Expenses for internal handling of items of fixed assets are not included in initial cost by the branches, but referred to current expenses.
Notification (avizo), consignment note for internal handling of items of fixed assets (form OC-2) and plan-record card (form OC-6) are the grounds for acceptance of fixed assets to accounting.
Items of fixed assets accepted or transferred for custody are reflected on the off-balance account 002 «Commodity and material valuables for custody» at prices provided in acceptance delivery statements.
If the Company takes decision of complete termination of its own use of individual items of fixed assets, so the following items are reflected in the accounting depending on the situation:
temporary shutdown of items – in this case these items are isolated in analitical records;
transfer of these items to other users on the basis of paid services contracts (rent contracts, hire contracts) – in this case these items are transferred to the account of accounting of interest-bearing investments in matertial valuables;
write-off from the accounting of not used permanently items (obsolescence and/or physical depreciation) – in this case the Company recognizes miscellaneous expenses.
Expenses for all types of repair of fixed assets (current and capital) are included in the expenses for ordinary types of activity within the period, in which repair works are completed and accepted. Reserves for repair of fixed assets or repair fund are not formed.
Change in cost of fixed assets
Change in initial cost of fixed assets at which they are accepted to to accounting, is admitted in cases of further construction, further equipping, reconstruction, upgrading, partial liquidation and reestimate of items of fixed assets.
Works on further construction, reconstruction and upgrading (including partial liquidation) of fixed assets are performed by the Company on the grounds of the annual plan of reconstruction and upgrading of fixed assets approved by the Director of the Company.
Technical further equipping includes a complex of measures on improvement of technical and economic indices of fixed assets or their individual parts basing on implementation of advanced machines and technologies, mechanization and automation of production, upgrading and replacement of morally obsolete or worn out equipment by a new one, more efficient.
Installation of equipment and machines, implementation of automated control and management systems, use of radio, television and other up-to-date means of production control, upgrading and technical re-equipping of nature protection facilities, heating and vent systems, connection of enterprises, workshops and installations to Whereas partial reconstruction and extension of the operating production buildings and constructions on the grounds of dimensions of new installed equipment, and extension of the operating or construction of new facilities of auxiliary and servicing purpose (e.g. warehouse facilities, compressor, boiler, oxygen and other items) are admitted, if it is connected with the performed measures on technical re-equipping.
Rearrangement of the existing items of fixed assets resulting in improvement (increase) of previously accepted qualitative indicators of fixed assets operation relates to upgrading or reconstruction:
other qualitative features.
Full or partial rearrangement or further equipping of the existing items without extension of available contructions, buildings and installations connected with updating of production and increase of its technical and economic level relates to reconstruction. Reconstruction is carried out for the purposes of increase of production powers, improvement of their qualitative characteristics.
Complex of measures on increase of technical and economic level of individual items on the grounds of implementation of advanced technologies, mechanization and automation of production, replacement of depreciated and worn out equipment by a new, more productive one relates to upgrading.
Building of new parts of constructions, installations, further equipping of the existing items constituting a whole with the item of fixed assets resulting in change of quantitative characteristics of fixed assets relates to further construction:
construction of supplementary premises on the operating item (buildup of floors, additional building of premises);
construction of supplementary items and inclusion of fixed assets in the existing complex.
Qualitative change (reduction) of physical and technical properties of items resulting in reduction of economic benefits from their use (liquidation of individual constructive elements of an item existing in fixed assets complex; replacement of separate parts at upgrading or reconstruction etc.) relates to partial liquidation.
In case of partial liquidation of items of fixed assets depreciation accumuted on them is written-off.
To determine that nature of works – upgrading or capital repairs – is defined at the stage of an item examination, planning of works, drawing up of cost extimates.
Acceptance and delivery of fixed assets from reconstruction and upgrading is executed by means of acceptance and delivery certificate of reconstructed and upgraded items (form ОС-3) on the basis of repair completion certificate (form КС-2), on the grounds of which a note of cost of performed works is filled in (form КС-3).
Change in initial cost of fixed assets is admitted in case of acceptance of liquidation of items of fixed assets in the same proportion of the decision on their revaluation up to replacement cost. Regularity of revaluation of fixed assets, decision on revaluation is made in case of significant deviation of the value at which fixed assets are recorded in the accounting reporting from their current (replacement) value. Revaluation of fixed assets is conducted basing on special order over the Company.