Accounting and audit of capital investments

Contents

introduction

1. Relevance of the topic

2. Purpose and objectives of the study, planned results

3. Research and development overview

4. Essence and value of capital investments

5. State of the capital investment problem

Conclusions

source List

Introduction

Capital investments, which play a key role in the renewal and increase of production resources, and therefore in ensuring certain rates of economic growth, constitute the material basis for the development of production, and are important both for the enterprise that carries them out, and for the economy as a whole. Research of problems of information support of management of expenses and sources of financing of capital investments has shown that, despite the essential contribution of scientists to the solution of this problem, many questions remain not worked till now. In particular, the problems reflecting the specifics of the costs associated with the renewal of fixed assets are not fully investigated. The accounting and reporting does not provide detailed information on the formation and use of sources of financing of capital expenditures.

1. Relevance of the topic

In a protracted financial and economic crisis, the functioning of national enterprises requires the development of fundamentally new approaches to the content of accounting and analytical information, the quality of which determines the effectiveness of decisions and business competitiveness. In this context, the need to improve accounting as a basis for information support of the enterprise management system, an important component of which is the accounting of capital investments, is of particular relevance. So, today many questions connected with the account of capital investments and their display in the reporting, are conceptually not proved, organizationally and methodologically not solved, information is not provided.

The Relevance of the chosen topic is due to the fact that the analysis of investments carried out in the form of capital investments makes it possible to determine the availability of necessary resources and possible directions of their attraction to improve the efficiency of the enterprise. Ill-considered capital investments may adversely affect technical development and technology improvement, as significant funds may be required for the reconstruction and modernization of fixed assets in the future.

2. Purpose and objectives of the study, planned results

The Purpose of this work is to identify contradictions and inconsistencies in the accounting and tax accounting of capital investments, as well as to develop specific recommendations for their settlement.

Main objectives of the study:

Substantiation of the essence and value of capital investments.

1. Consideration of the state of the problem of capital investments.

2. Mapping ways to improve the accounting of capital investments.

3. Object of research: accounting of capital investments.

Subject of research: theoretical, methodological and practical issues of accounting for operations with capital investments.

3. Research and development overview

Foreign scientists like K. Marx [1], as well as well-known domestic scientists such as: V. A. Gavrilenko [2], L. A. Leonova [3], V. V. Verbitskaya [4], L. A. lovinskaya [5], F. F. butinets [6], etc.however, despite all efforts in this direction, it was not possible to solve this problem to the end.

4. Essence and value of capital investments

At the present stage of development of accounting in different sources there is no clear definition of the category and composition of capital investments. This shortcoming leads to a number of issues related to the definition of the nature of capital investments and the display of related costs in the accounts. At the legislative level, the category of capital investments is interpreted as follows. The category Capital investments is defined in the Law of Ukraine on investment activities [7], according to which the result of capital investments is the reconstruction of fixed assets and the increase in inventories.

Capital investment refers to the cost of construction, manufacture or acquisition of fixed assets, as well as the reconstruction, expansion and technical re-equipment of existing enterprises. Sources of financing of capital investments can be as own funds (profit, depreciation, budget financing, financing of third-party organizations in the order of equity participation in construction, etc.).

From the position of SBU 7 – capital investments in non-current tangible assets – costs of construction, reconstruction, modernization (other improvements that increase the initial (revalued) value), manufacture, acquisition of tangible non-current assets (including non-current tangible assets intended to replace existing, and equipment for installation) carried out by the enterprise [8].

As for the NCB, it also contains a definition of the term capital investment. According to the tax code, capital investments are economic transactions that involve the acquisition of fixed assets and intangible assets subject to depreciation in accordance with the provisions of this Code. And if funds are received from the budget on an irrevocable basis with the condition of their expenditure in the implementation of operations involving the acquisition of fixed assets and intangible assets subject to depreciation in accordance with the norms of the tax code, then this is nothing but targeted financing of capital investments from the budget [9].

After Analyzing the legal and methodological support, it is possible to formulate a generalizing definition of the category capital investment, namely: it is a set of costs of the enterprise aimed at the acquisition, manufacture, expansion, modernization or reconstruction of fixed assets, other non-current tangible assets and intangible non-current assets, in order to obtain income or economic benefits in the future.

Capital works can be performed in a contract way (that is, by specialized construction and installation organizations on a contractual basis) or in an economic way (that is, by the enterprise itself). The procedure for accounting for the costs of capital investments is regulated by the Regulation (standard) of accounting 16 Expenses. On the debit of account 15 Capital investments and its sub-accounts reflect the costs (for the acquisition and creation of tangible and intangible non-current assets), on the loan – write-off of these costs for completed and commissioned facilities. Analytical accounting of capital investments is conducted respectively by types of fixed assets, other non-current tangible assets, intangible assets, as well as by individual objects of capital investments.

The Absolute efficiency of capital investments for different levels is calculated by the following formula:

Where Е₀ – coefficient of absolute efficiency of capital investments,

НЧП – increase in regulatory net production,

К – capital investments that caused the increase.

The organization of accounting for capital investment costs is influenced by the way construction and installation works are performed. At the contract method of performance of works the accounting of material, labor and financial expenses for construction and installation works is carried out by the contractor. The enterprise-Builder in this case carries out only accounting of expenses for capital investments and calculations with the contractor for the works executed and accepted according to acts.

So, according to P (C)BU 7 Fixed assets, the initial cost of fixed assets increases by the amount of costs associated with the improvement of the object (modernization, modification, completion, retrofitting, reconstruction, etc.), which leads to an increase in the future economic benefits initially expected from the use of the object. The residual value of fixed assets is reduced due to the partial liquidation of the object of fixed assets. The initial (revalued) cost of fixed assets may be increased by the amount of expenses related to the improvement and repair of the object, determined in the manner prescribed by tax legislation. Expenses incurred to maintain the facility in working order (technical inspection, supervision, maintenance, repair, etc.) and to obtain an initially determined amount of future economic benefits from its use are included in the expenses. The notes to the financial statements also provide information on the amount of capital investments in property, plant and equipment for the year. Taking into account the impact of technical and technological features of the directions of capital investments in fixed assets can be allocated:

1. new construction;
2. modernization, reconstruction, expansion and technical re-equipment of existing enterprises;
3. performance of research and development works;
4. acquisition (purchase) of fixed assets.

In the course of research of economic essence of sources of financing of capital investments it is revealed that definition and search of sources of investments in non-current assets are key questions of financial activity of any enterprise, and, consequently, and one of the most important questions of accounting of the organization. The sources of financing of capital investments are understood as funds and cash flows which allow to carry out at their expense the process of capital investments. At the same time, in the economic literature, sources of financing are often identified with methods of financing capital investments. In our opinion, it is very important to separate these concepts. Methods include the ways in which sources of financing are formed and investment projects are implemented. For example, investing in shares of third-party companies is a method that allows you to get additional profit, which, in turn, will be a potential source of various kinds of investments.

5. State of the capital investment problem

Given the debatable nature of certain theoretical provisions, their practical importance in the period of decline in investment activity of national enterprises, we believe it is necessary to conduct a comprehensive scientific study of modern problems of accounting for capital investments in order to solve them at the legislative, organizational, methodological levels and practical testing in the conditions of specific enterprises. To this end, a number of unresolved and debatable problems in the accounting of capital investments of General theoretical, methodological and organizational nature are identified. The most important of which, in our opinion, are the following.

1. Lack of systematic classification of capital investments. Thus, it is difficult to find a single system classification of capital investments in the existing regulatory documents, educational and scientific literature. Unfortunately, neither P (C)BU 7 Fixed assets [8], nor the Guidelines for accounting of fixed assets, nor the instruction on the application of the chart of accounts [10] contain any specific grouping of capital investments. And only on the content of the above official definitions and in the context of the characteristics of the account 15 Capital investments can be identified objects in which capital investments can be carried out.

2. On the subaccount 151 Capital construction reflects the cost of construction, which is carried out both economic and Contracting method for the own needs of the enterprise.

An Important condition of the Contracting method of performance of works is the condition of implementation of production costs directly by the contractor. This sub-account keeps records of the equipment to be installed in the construction process and advance payments to Finance the said construction. In our opinion, the sub-account 151 Capital construction requires some reform, namely: to open accounts of the third order by types of improvements 1511 Capital investments in modernization, 1512 Capital investments in reconstruction, 1513 Capital investments in completion, 1514 Capital investments in reorganization, 1515 Capital investments in re-profiling and other types of improvements, 1516 Capital investments in repairs that are capitalized, 1517 Capital investments in repairs that are not capitalized.

The Introduction of these sub-accounts of the third order will provide accounting information management needs for operational analysis of capital investments in accordance with the forms of capital investment. Methodological recommendations for the use of accounting registers, approved by the order of the Ministry of Finance of Ukraine, established the conduct of synthetic accounting of capital investments in the journal 4, analytical – in statements 4.1. However, the statement of 4.1. somewhat does not meet the requirements of users, because for the efficiency of management information, it is necessary to introduce information concretization of the relevant third-order sub-accounts and, as previously proposed by scientist S. ZADOROZHNY, to provide information in the context of objects [11]. This combination of information will allow the use of fame as an important source of management information on capital investment.

3. You can't mix current and capital repairs, as maintenance focused on maintenance of equipment and overhauls are aimed at restoring the reliability of equipment and gaining economic benefits from its use in a future period. Also, the attribution of the cost of capital repairs to production costs in the current period, which seems to correspond to paragraph 15 P (C) BU 7, will lead to a violation of the principle of conformity of income and expenses. It should be said that Gavrilenko VA. believes that properly reflect capital repairs to fixed assets reclassification to need major repairs to increase the residual value of this equipment through the reduction of wear and tear that is recorded by the transaction: Credit account 15 Capital investment, Debit 131 Depreciation. At the same time, the initial cost of the equipment remains unchanged [1].

Conclusions

Capital investments, which play a key role in the renewal and increase of production resources, and therefore in ensuring certain rates of economic growth, constitute the material basis for the development of production, and are important both for the enterprise that carries them out, and for the economy as a whole.

In enterprises, primary and analytical accounting is often not fully adapted to account for costs and sources of financing at all stages of capital investments. It is not always possible to obtain complete information about a specific source of capital investment financing from accounting data. Not at the proper level are summarizing accounting and reporting on the actual costs and sources of financing of capital investments in each direction.

The Main problems in the accounting of capital investments are: imperfection of their definition, unsettled criteria for recognition and evaluation, imperfection of the methodology of synthetic and analytical accounting, unreasonableness of methodological approaches to the accounting of capital investments in the improvement of non-current assets.

Thus, the recommendations proposed in the article on reforming the accounting of capital investment transactions provide for the elimination of contradictions in their accounting and will make the financial statements real.

When writing this essay, the master's work has not yet been completed. Final completion: may 2019. The full text of the work and materials on the topic can be obtained from the author or his supervisor after the specified date.

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