How to Capitalize Offshore Platform and Production Facility Construction Costs Under Assets Under Construction
Accumulating offshore production platform construction costs in Assets Under Construction until the facility is commissioned.
| Account Name | Type | Debit ($) | Credit ($) |
|---|---|---|---|
| Assets Under Construction — Platform (PPE) | Asset (+) | 500,000,000.00 | - |
| Cash / Contractor Progress Billings | Asset/Liability (-) | - | 500,000,000.00 |
💡 Accountant's Note
Production platforms are the most capital-intensive assets in offshore E&P. Costs accumulate in Assets Under Construction and transfer to PPE when the facility is commissioned. The ARO for eventual decommissioning is recognized simultaneously.
Practitioner & Systems Framework
💻 ERP Architecture
All costs to bring the platform to its intended use are capitalized in AUC: EPC contractor progress billings, project management, commissioning costs, and capitalized borrowing costs (IAS 23). Capitalize IAS 23 borrowing costs if the platform is a qualifying asset funded by specific project finance. When the platform is commissioned (first production or readiness for use), transfer from AUC to PP&E and record the ARO simultaneously. Begin depletion using UOP from first production. Maintain a project cost control system tracking actual vs. budget by EPC work package.
⚠️ Audit Flags
Large AUC balances attract scrutiny — auditors assess whether the platform is still genuinely under construction or if commissioning has occurred and depletion should have started. The commissioning date (triggering transfer from AUC to PPE and start of depletion) is carefully examined. Cost overruns above the approved AFE require updated impairment testing to confirm the recoverable amount of the platform exceeds its elevated cost.
📄 Required Documentation
EPC contract and change orders, contractor progress billing certifications, project manager's commissioning certificate (mechanical completion, ready for start-up, or first production date), transfer from AUC to PPE journal at commissioning date, ARO initial recognition (decommissioning cost estimate and PV calculation), updated impairment assessment, and IAS 23 borrowing cost capitalization calculation.
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Expert Analysis by Qusai Ahmad
General Accountant Supervisor & IFRS Specialist
Specialized in SAP GUI automation and Middle Eastern tax compliance. Building digital tools for the next generation of finance leaders.
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