There is a problem on recognition of equipment in transit.

Question

The incoterms CIP, so we recognized asset when the first expediter receives equipment. It 100% will be recognized in CIP then in PPE, when it arrives. But now, when it in the way, how should we recognize the equipment. Is it appropriate to recognize as CIP, however there is a lot of arguments. Now head of accounting prefers represent PPE as goods in transit and represent it as inventory.

Answer 1

For the this purpose i would recommend to open a account in trial balances with name of goods in transit.following entry would be passed:
As per the revenue recognition - If the terms is FOB, then
this entry is to be passed. ie. only at the time of Risk
and rewards are transferred to the buyer.
Goods in transit entry is as follows

Goods in transit A/c Dr
  Party Name cr

At the time of receipt of goods
CIP or PPE A/c Dr
To Goods in trasit CR

Comments

The problem is that the Equipment will be represented in Inventory, and will increase Working Capital. For financial statement, should we disclose the equipment in transit as inventory? (Currently we have account goods in transit which is a subaccount of inventory).

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I would recommend you to open new a/c under property plant and equipments with name of goods in transit general..