Capitalization of Fixed Assets Journal Entry

Capitalization of Fixed Assets / Non Current Assets means that any cost incurred in the acquisition of assets will be added to the cost of assets rather than separately charged it as an expense. Examples are wages paid for the installation of machinery, additions to fixed assets, etc.

Suppose, the company purchased machinery worth Rs. 500000 for Cash. After that, the company paid wages of Rs. 5000 for the installation and erection of plant & machinery. The following entry is recorded in the Books of Accounts of company as shown below:

                                        Plant & Machinery a/c  505000

                                                                              Cash a/c  505000

                                                         (Machinery Purchased For Cash)

 

From the above journal entry, it is clear that we add wages of Rs. 5000 to the cost of machinery as this cost is used in the acquisition of machinery, so it is capitalized and we did not debit wages account instead it we debit machinery account and add the cost of wages in it.