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Cement Plant 'Commisioning' phase cost to AuC

Dear Experts

My client has cement manufacturing plant which is mapped to SAP. Now they are setting up another production line to increase the output quantity. This new production line will be tested for 3 months under 'commissioning period' Business want to capitalize (to AuC) the entire cost of 3 months manufacturing of the cement. During these 3 months earlier production line will work normally.

I need your expert guidance on how we can setup the system?

For better understanding, let me tell you that this new plant will below steps;

Step1: Manufacturing of Raw Mill (Inputs will be all crushed raw material, i.e. Limestone, sand, Iron Ore etc)

Step 2: Confirmation of Raw Mill (Semi Finished Goods) for manufacture of Clinker (SF Good) and so on.

Business does not want their P/L to be effected for any of the consumption neither they want COGM to used.

Please help.

Regards

Syed Zia Abbas

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2 Answers

  • May 25, 2015 at 07:06 AM

    Hi

    For the accounting point of view .. the entity is allowed to capitalized the production cost of the testing period but be aware also that the IFRS dictate that the proceeds from the sale of this production start up sample has to be deducted from the asset value ..

    i have an idea you may study it may helps.. the production orders that will be processed on this new production line, you need to assign them to settle on intermediate account "balance sheet account ", which you can also assign the proceeds of sale such production in order to reach the net amount that allowed to be capitalized on the new production line..

    Regards

    Mahmoud EL Nady

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    • Dear Mahmoud

      Thanks for your reply

      I agree with you. Infact we need to consider the revenues also and the net amount (Total Cost Less Revenues) need to be capitalised via AuC.

      As a process I cannot assign the GL into Production Order settlement rule, as it by default has to settle on Material.

      More inputs needed..!!!

      Regards

  • avatar image
    Former Member
    May 25, 2015 at 09:13 AM

    Hi

    In my suggestion..you may capture cost/revenue in a CO production order ( without any PP relevancy) and settle the net cost to AuC G/l....which I think may be fulfilled the conditions.

    Kamal

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