home Accounting, audit Books Encyclopedia of Accounting - Gracheva R.E. Section II P.1

Encyclopedia of Accounting - Gracheva R.E. Section II P.1

Construction of fixed assets

Construction and erection works on the erection of new and reconstruction of old buildings and structures, production and non-production facilities are conducted in two organizational forms, which are adopted as:

- contract method of capital construction;

- economic way of capital construction.

The contract method is carried out on the basis of contract agreements concluded between the customer (developer) and the contractor (executor). From the economic point of view, this is the way in which one person (the customer) invests in the construction of new facilities for their own needs, the other (the contractor) earns its income and, accordingly, the profit as the difference between income and expenses associated with these revenues.

The economic way is carried out by own forces of the enterprise-builder. The economic method of capital construction is mainly used for small amounts of construction and installation, repair or restoration works, as well as for any scale of work in the event that the construction and erection organization performs construction work, not by agreement of unauthorized persons, but for its own needs, i.e., Itself acts as both the customer and the developer, and, in accordance with this, has at his disposal all the necessary labor resources. With the economic method of capital construction, no one earns income, since the turnover of capital invested in such construction occurs within the framework of one enterprise.
Taking into account that not only construction and installation, but also design, survey, drilling and other works related to the construction of objects are related to the construction industry, it can be said that there is practically no economic method in its pure form. However, the method of construction is considered economic once already when the developer accounts for most of the construction work - actually SMR.

In accounting entries, the contract method differs from the economic one, as a rule, only by elements from which capital expenditures consist. With the contract method, one of the elements of a significant part of the costs is the cost of the work performed by the contractor as a whole. With the economic method, since the cost of construction and installation works is formed directly at the enterprise, this part of the value of the future fixed asset object consists of many elements: materials, wages, insurance fees, depreciation, etc., according to the elements of actually incurred expenses. In the part of accounting transactions, which reflect all the preparatory stages of work, the contractor and economic method may not differ. Although this is not always the case. After all, it is quite possible to construct by economic means such an insignificant object on the territory of this enterprise (or in its assigned perpetual use), which does not require obtaining a significant number of permits and tasks from the local department of architecture or developing projects of such volume that would require special author supervision . Varintov can be many.

Below, we consider both methods of capital construction (contract and economic).