VAT credit on Capital Goods - Accounting Treatment

The VAT credit on capital goods may or may not be available immediately. To the extent VAT Credit is available immediately, the amount in respect of thereof should be debited to an appropriate account, say, “VAT Credit Receivable ( Capital Goods Account)” and the balance which is not available immediately should be debited to another appropriate account, say “VAT Credit Deferred (Capital Goods) Account”. 

Subsequently, when the balance credit or a part thereof becomes available, the appropriate adjustment for the same should be made, i.e. the amount of credit becoming available should be credited to ‘VAT Credit Deferred (Capital Goods) Account’ with a corresponding debit to “VAT Credit Receivable (Capital Goods) Account”. 

Depreciation should be charged on the original cost of the fixed asset excluding the VAT Credit.