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What is the difference between capital work in progress and
capital commitment??
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Answer Posted / james e
Capital Work in progress means Work that has not been
completed but has already incurred a capital investment
from the company.This is usually recorded as an asset on
the balance sheet.Capital WIP is referred to as Assets
under Construction and are represented by a specific Asset
class. Usually depreciation is not charged on Capital
WIP.Subsequently on the actual readiness of the asset for
commercial production, the Asset Under Construction gets
capitalized to an actual asset.
Capital Commitment is Allocation of funds for a possible
liability in the near future arising out of capital
expenditure. Firms must disclose their capital and
financial commitments in notes (footnotes) accompanying a
balance sheet.A capital commitment is a financial term that
can be used in two similar ways. Capital commitments can be
described as the complete inventory of stocks that are in
the possession of market makers. In a related manner, a
capital commitment can also refer to a business decision
that is made by a corporation to invest a portion of its
long-term assets over a specified period of time.In the
case of relating to inventories of stock, a capital
commitment can be viewed as a risk for the market maker.
This is due to the fact that inventories of stocks can
change in value over time. Depending on the performance of
the stock market, the value of those stocks may rise, or
they may fall. The risk to the market maker is that the
stocks will not appreciate, which will ultimately reduce
the overall value of the investment portfolio. Just as with
the concept of a capital commitment relating to an
inventory of stocks, companies looking to invest resources
in a business venture want to take steps to protect their
capital commitment. This is often accomplished by employing
the basics of capital budgeting
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