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In the workings 2 of PPE section Why is the provision of 4 million being capitalizd wd d plant?wen do we actually capitalize a provision?please help…
@saaninaani
The normal journal for a provision is DR expense CR liability.
But if we have an obligation(provision) tied to an asset eg. dismantling costs then we add the provision
onto the cost of the asset and depreciate entire amount.
The logic in this is that ALL costs incurred in bringing the asset into use must be capitalised.
The liability remains the same so we end up with:
DR asset CR liability
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