Overview
When a business constructs an asset for its own use, such as a building, equipment or an internally developed intangible asset, costs typically accumulate in a Work in Progress (WIP) account until the asset is complete and depreciation can begin.
The recommended approach uses two Fixed Asset elements connected via the Revaluation setting to move the balance from WIP into a depreciating asset once complete.
Reporting Outcome
| Area | Outcome |
|---|---|
| P&L | No depreciation while in WIP. Depreciation begins from the month of transfer to the new Fixed Asset element. |
| Balance Sheet | WIP balance accumulates during construction, then reduces (negative Revaluation) as the new Fixed Asset balance increases (positive Revaluation) by the same amount. Total fixed assets unaffected. Revaluation Reserves holds the movement and can be collapsed to hide the net-off. |
| Cash Flow | No impact from the transfer itself - processed entirely through Revaluation. Construction cash outflows are recognised when incurred. |
The Method
- Map a Fixed Asset element for the WIP account. Set the Depreciation Method to Enter and enter no depreciation expense against it.
- Map a second Fixed Asset element for the completed asset once it is ready for use - this is where depreciation will run once transferred.
- In the month the asset is complete and ready for use, enter a negative value in the Revaluation line of the WIP element equal to the balance being transferred out.
- In the same month, enter the same value as a positive in the Revaluation line of the new Fixed Asset element.
- Begin entering depreciation on the new Fixed Asset element from this point.
If only part of a project is complete, for example, one wing of a building, the same method can be applied to transfer just that portion, leaving the remainder in the WIP element for a future transfer.
Worked Example: Constructing a Building
A business is constructing a new building for its own use. Construction costs of $500,000 are being capitalised into a WIP Fixed Asset element over several months. In December 2026 the building is complete and ready for use.
- WIP Fixed Asset balance immediately prior to transfer: $500,000
- In December 2026, enter -$500,000 in the Revaluation line of the WIP Fixed Asset element
- In December 2026, enter $500,000 in the Revaluation line of the new Buildings Fixed Asset element
- From December 2026 onwards, depreciation occurs in line with the Buildings Fixed Asset method
- Balance sheet Revaluation Reserves holds the movements but this can be collapsed to hide the net off.
Other Use Cases
| Use Case | Application |
|---|---|
| Custom machinery or equipment | Built or installed over several months before becoming operational |
| Internally developed software or intangible assets | Development costs accumulate before the asset goes live and amortisation begins |
| Vehicle / fleet conversion and customisation | Costs of converting a base vehicle into a specialised asset (e.g. a delivery van fitted out for refrigeration) before it enters service |
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