Capital Expenditure and Construction in Progress: Accounting and Commissioning

Capital expenditure accounts (0800)

Para 67 of the Chart of Accounts instructions lists the accounts that record investment in fixed assets and intangible assets. Analytical records are kept for each line of capital expenditure (para 74).

• 0810 “Construction in progress” — costs of erecting buildings and structures under estimates and title lists, and of buying equipment, tools and fixtures provided for in the estimate, whether the work is done by contractors or in-house (para 68);
• 0820 “Acquisition of fixed assets” — all costs of buying, installing and assembling fixed assets (para 69);
• 0830 “Acquisition of intangible assets” (para 70);
• 0850 “Capital expenditure on land improvement” — roads, car parks, fences, landscaping (para 72);
• 0860 and 0870 — capital expenditure on fixed assets held under finance and operating leases (paras 73, 73¹);
• 0890 “Other capital expenditure”.

What goes into initial cost

Under NAS No. 5, initial cost is the cost of creating (building, completing) or acquiring the asset, including taxes and fees paid and not recoverable, plus delivery, assembly, installation and start-up costs directly attributable to bringing the asset to working condition (para 3). For assets built in-house, initial cost is the total cost of creating them (para 14).

• included: registration fees and state duties, customs payments, non-recoverable taxes, information and consulting services related to the asset, insurance of delivery risks, fees to intermediaries, assembly, set-up and start-up (para 13);
• interest on loans taken for construction and accrued during the construction period is included in the cost of the asset created (para 13);
• not included: banking services for payment (letters of credit, conversion, commissions) and the costs of drafting and registering the contract — these are period expenses (para 13);
• abnormal amounts of materials, labour and other resources used when building in-house are not included (para 14);
• output produced while testing the asset is recorded at net realisable value and reduces capital expenditure (para 15).

Commissioning and start of depreciation

The asset is put on the balance sheet as a fixed asset on the basis of acceptance and handover of the completed asset after capital expenditure is finished (para 10 of NAS No. 5). That is when costs move from the 0800 accounts to the 0100 accounts.

• depreciation is charged from the date the asset is accepted into fixed assets and put into operation (para 33 of NAS No. 5) — while costs sit in 0810 or 0820 there is no depreciation;
• capital expenditure on perennial plantings, fundamental land improvement and leased assets is transferred to fixed assets annually, in the amount relating to assets put into use during the reporting year, regardless of whether the whole programme is complete (para 27);
• for tax, capital expenditure not transferred to depreciable assets is not depreciated (Article 306 of the Tax Code) — delaying the commissioning paperwork also delays tax depreciation;
• commissioning documents: an acceptance and handover act; for construction — documents on acceptance of the facility; for equipment — an act confirming completion of installation and commissioning works.

Upgrades, reconstruction and repairs

• initial cost changes on completion of additions, re-equipment, reconstruction, modernisation, technical upgrading and partial liquidation (para 24 of NAS No. 5);
• capital expenditure increases the asset’s cost when future economic benefits from its use increase; all other costs are expensed in the period incurred (para 25);
• repair costs (routine, medium, major) are period costs: for production assets — cost of sales, for administrative assets — period expenses (para 50);
• if the asset is taken completely out of service for reconstruction, depreciation is suspended (para 35).

VAT on capital construction

When a taxpayer acquires fixed assets (including equipment for installation) and real estate, including construction in progress, or goods and services to create its own fixed assets, the VAT charged by the seller is credited in full (Article 266, part six, of the Tax Code of the Republic of Uzbekistan). There is no need to wait for commissioning.

• the general credit conditions still apply: the asset is used in taxable activity, and there is an invoice from a registered VAT payer showing VAT separately (Article 266, part one);
• VAT on imported equipment is credited in the same way once paid on import;
• if the asset will be used in exempt activity, check the Article 267 rules on non-creditable VAT before construction starts.

Long construction: property tax and land tax

Construction in progress is subject to legal-entity property tax if it is not completed within the standard period in the design and estimate documents or, if no period is set, within twenty-four months from the month the building permit was obtained (Article 411 of the Tax Code). The tax base for such assets is the average annual value of construction in progress (Article 412).

• land tax on plots occupied by construction in progress is paid at double rates unless the law provides otherwise, and reliefs and reducing coefficients do not apply to such plots until construction is completed (Article 429);
• so monitor the standard construction period for each asset and document commissioning on time;
• the property tax rate on construction not completed within the standard period is 3% instead of the base 1.5%; for assets the Cabinet of Ministers has decided to mothball — 0.7% (Article 415).