diff --git a/erpnext/assets/doctype/asset/test_asset.py b/erpnext/assets/doctype/asset/test_asset.py
index 4cc9be5..2bb5a09 100644
--- a/erpnext/assets/doctype/asset/test_asset.py
+++ b/erpnext/assets/doctype/asset/test_asset.py
@@ -702,9 +702,9 @@
 		"company": args.company or"_Test Company",
 		"purchase_date": "2015-01-01",
 		"calculate_depreciation": args.calculate_depreciation or 0,
-		"gross_purchase_amount": 100000,
-		"purchase_receipt_amount": 100000,
-		"expected_value_after_useful_life": 10000,
+		"gross_purchase_amount": args.asset_value or 100000,
+		"purchase_receipt_amount": args.asset_value or 100000,
+		"expected_value_after_useful_life": args.asset_value or 10000,
 		"warehouse": args.warehouse or "_Test Warehouse - _TC",
 		"available_for_use_date": "2020-06-06",
 		"location": "Test Location",
diff --git a/erpnext/assets/doctype/asset_capitalization/test_asset_capitalization.py b/erpnext/assets/doctype/asset_capitalization/test_asset_capitalization.py
index da12846..9bfc88b 100644
--- a/erpnext/assets/doctype/asset_capitalization/test_asset_capitalization.py
+++ b/erpnext/assets/doctype/asset_capitalization/test_asset_capitalization.py
@@ -1,9 +1,334 @@
 # Copyright (c) 2021, Frappe Technologies Pvt. Ltd. and Contributors
 # See license.txt
 
-# import frappe
 import unittest
 
+import frappe
+from frappe.utils import cint, flt, getdate, now_datetime
+
+from erpnext.assets.doctype.asset.depreciation import post_depreciation_entries
+from erpnext.assets.doctype.asset.test_asset import (
+	create_asset,
+	create_asset_data,
+	set_depreciation_settings_in_company,
+)
+from erpnext.stock.doctype.item.test_item import create_item
+
 
 class TestAssetCapitalization(unittest.TestCase):
-	pass
+	def setUp(self):
+		set_depreciation_settings_in_company()
+		create_asset_data()
+		create_asset_capitalization_data()
+		frappe.db.sql("delete from `tabTax Rule`")
+
+	def test_capitalization(self):
+		# Variables
+		consumed_asset_value = 100_000
+
+		stock_rate = 1000
+		stock_qty = 2
+		stock_amount = 2000
+
+		service_rate = 500
+		service_qty = 2
+		service_amount = 1000
+
+		total_amount = 103_000
+
+		# Create assets
+		target_asset = create_asset(asset_name='Asset Capitalization Target Asset', submit=1)
+		consumed_asset = create_asset(asset_name='Asset Capitalization Consumable Asset', asset_value=consumed_asset_value,
+			submit=1)
+
+		# Create and submit Asset Captitalization
+		asset_capitalization = create_asset_capitalization(target_asset=target_asset.name,
+			stock_qty=stock_qty, stock_rate=stock_rate,
+			consumed_asset=consumed_asset.name,
+			service_qty=service_qty, service_rate=service_rate,
+			service_expense_account='Expenses Included In Asset Valuation - _TC',
+			submit=1)
+
+		# Test Asset Capitalization values
+		self.assertEqual(asset_capitalization.entry_type, 'Capitalization')
+		self.assertEqual(asset_capitalization.target_qty, 1)
+
+		self.assertEqual(asset_capitalization.stock_items[0].valuation_rate, stock_rate)
+		self.assertEqual(asset_capitalization.stock_items[0].amount, stock_amount)
+		self.assertEqual(asset_capitalization.stock_items_total, stock_amount)
+
+		self.assertEqual(asset_capitalization.asset_items[0].asset_value, consumed_asset_value)
+		self.assertEqual(asset_capitalization.asset_items_total, consumed_asset_value)
+
+		self.assertEqual(asset_capitalization.service_items[0].amount, service_amount)
+		self.assertEqual(asset_capitalization.service_items_total, service_amount)
+
+		self.assertEqual(asset_capitalization.total_value, total_amount)
+		self.assertEqual(asset_capitalization.target_incoming_rate, total_amount)
+
+		# Test Target Asset values
+		target_asset.reload()
+		self.assertEqual(target_asset.gross_purchase_amount, total_amount)
+		self.assertEqual(target_asset.purchase_receipt_amount, total_amount)
+
+		# Test Consumed Asset values
+		self.assertEqual(consumed_asset.db_get('status'), 'Capitalized')
+
+		# Test General Ledger Entries
+		expected_gle = {
+			'_Test Fixed Asset - _TC': 3000,
+			'Expenses Included In Asset Valuation - _TC': -1000,
+			'Stock In Hand - _TC' : -2000
+		}
+		actual_gle = get_actual_gle_dict(asset_capitalization.name)
+
+		self.assertEqual(actual_gle, expected_gle)
+
+		# Test Stock Ledger Entries
+		expected_sle = {
+			('Capitalization Source Stock Item', '_Test Warehouse - _TC'): {
+				'actual_qty': -stock_qty, 'stock_value_difference': -stock_amount
+			}
+		}
+		actual_sle = get_actual_sle_dict(asset_capitalization.name)
+
+		self.assertEqual(actual_sle, expected_sle)
+
+		# Cancel Asset Capitalization and make test entries and status are reversed
+		asset_capitalization.cancel()
+		self.assertEqual(consumed_asset.db_get('status'), 'Submitted')
+		self.assertFalse(get_actual_gle_dict(asset_capitalization.name))
+		self.assertFalse(get_actual_sle_dict(asset_capitalization.name))
+
+	def test_decapitalization_with_depreciation(self):
+		# Variables
+		purchase_date = '2020-01-01'
+		depreciation_start_date = '2020-12-31'
+		capitalization_date = '2021-06-30'
+
+		total_number_of_depreciations = 3
+		expected_value_after_useful_life = 10_000
+		consumed_asset_purchase_value = 100_000
+		consumed_asset_current_value = 70_000
+		consumed_asset_value_before_disposal = 55_000
+
+		target_qty = 10
+		target_incoming_rate = 5500
+
+		depreciation_before_disposal_amount = 15_000
+		accumulated_depreciation = 45_000
+
+		# to accomodate for depreciation on disposal calculation bugs TODO remove this when bug is fixed
+		consumed_asset_value_before_disposal = 60_082.19
+		target_incoming_rate = 6008.219
+		depreciation_before_disposal_amount = 9917.81
+		accumulated_depreciation = 39_917.81
+
+		# Create assets
+		consumed_asset = create_depreciation_asset(
+			asset_name='Asset Capitalization Consumable Asset',
+			asset_value=consumed_asset_purchase_value,
+			purchase_date=purchase_date,
+			depreciation_start_date=depreciation_start_date,
+			depreciation_method='Straight Line',
+			total_number_of_depreciations=total_number_of_depreciations,
+			frequency_of_depreciation=12,
+			expected_value_after_useful_life=expected_value_after_useful_life,
+			submit=1)
+
+		# Create and submit Asset Captitalization
+		asset_capitalization = create_asset_capitalization(
+			posting_date=capitalization_date,  # half a year
+			target_item_code="Capitalization Target Stock Item",
+			target_qty=target_qty,
+			consumed_asset=consumed_asset.name,
+			submit=1)
+
+		# Test Asset Capitalization values
+		self.assertEqual(asset_capitalization.entry_type, 'Decapitalization')
+
+		self.assertEqual(asset_capitalization.asset_items[0].current_asset_value, consumed_asset_current_value)
+		self.assertEqual(asset_capitalization.asset_items[0].asset_value, consumed_asset_value_before_disposal)
+		self.assertEqual(asset_capitalization.asset_items_total, consumed_asset_value_before_disposal)
+
+		self.assertEqual(asset_capitalization.total_value, consumed_asset_value_before_disposal)
+		self.assertEqual(asset_capitalization.target_incoming_rate, target_incoming_rate)
+
+		# Test Consumed Asset values
+		consumed_asset.reload()
+		self.assertEqual(consumed_asset.status, 'Decapitalized')
+
+		consumed_depreciation_schedule = [d for d in consumed_asset.schedules
+			if getdate(d.schedule_date) == getdate(capitalization_date)]
+		self.assertTrue(consumed_depreciation_schedule and consumed_depreciation_schedule[0].journal_entry)
+		self.assertEqual(consumed_depreciation_schedule[0].depreciation_amount, depreciation_before_disposal_amount)
+
+		# Test General Ledger Entries
+		expected_gle = {
+			'Stock In Hand - _TC': consumed_asset_value_before_disposal,
+			'_Test Accumulated Depreciations - _TC': accumulated_depreciation,
+			'_Test Fixed Asset - _TC': -consumed_asset_purchase_value,
+		}
+		actual_gle = get_actual_gle_dict(asset_capitalization.name)
+
+		self.assertEqual(actual_gle, expected_gle)
+
+		# Cancel Asset Capitalization and make test entries and status are reversed
+		asset_capitalization.cancel()
+		self.assertEqual(consumed_asset.db_get('status'), 'Partially Depreciated')
+		self.assertFalse(get_actual_gle_dict(asset_capitalization.name))
+		self.assertFalse(get_actual_sle_dict(asset_capitalization.name))
+
+
+def create_asset_capitalization_data():
+	create_item("Capitalization Target Stock Item",
+		is_stock_item=1, is_fixed_asset=0, is_purchase_item=0)
+	create_item("Capitalization Source Stock Item",
+		is_stock_item=1, is_fixed_asset=0, is_purchase_item=0)
+	create_item("Capitalization Source Service Item",
+		is_stock_item=0, is_fixed_asset=0, is_purchase_item=0)
+
+
+def create_asset_capitalization(**args):
+	from erpnext.stock.doctype.warehouse.test_warehouse import create_warehouse
+
+	args = frappe._dict(args)
+
+	now = now_datetime()
+	target_asset = frappe.get_doc("Asset", args.target_asset) if args.target_asset else frappe._dict()
+	target_item_code = target_asset.item_code or args.target_item_code
+	company = target_asset.company or args.company or "_Test Company"
+	warehouse = args.warehouse or create_warehouse("_Test Warehouse", company=company)
+	target_warehouse = args.target_warehouse or warehouse
+	source_warehouse = args.source_warehouse or warehouse
+
+	asset_capitalization = frappe.new_doc("Asset Capitalization")
+	asset_capitalization.update({
+		"company": company,
+		"posting_date": args.posting_date or now.strftime('%Y-%m-%d'),
+		"posting_time": args.posting_time or now.strftime('%H:%M:%S.%f'),
+		"target_item_code": target_item_code,
+		"target_asset": target_asset.name,
+		"target_warehouse": target_warehouse,
+		"target_qty": flt(args.target_qty) or 1,
+		"target_batch_no": args.target_batch_no,
+		"target_serial_no": args.target_serial_no,
+		"finance_book": args.finance_book
+	})
+
+	if args.posting_date or args.posting_time:
+		asset_capitalization.set_posting_time = 1
+
+	if flt(args.stock_rate):
+		asset_capitalization.append("stock_items", {
+			"item_code": args.stock_item or "Capitalization Source Stock Item",
+			"warehouse": source_warehouse,
+			"stock_qty": flt(args.stock_qty) or 1,
+			"batch_no": args.stock_batch_no,
+			"serial_no": args.stock_serial_no,
+		})
+
+	if args.consumed_asset:
+		asset_capitalization.append("asset_items", {
+			"asset": args.consumed_asset,
+		})
+
+	if flt(args.service_rate):
+		asset_capitalization.append("service_items", {
+			"item_code": args.service_item or "Capitalization Source Service Item",
+			"expense_account": args.service_expense_account,
+			"qty": flt(args.service_qty) or 1,
+			"rate": flt(args.service_rate)
+		})
+
+	if args.submit:
+		create_stock_reconciliation(asset_capitalization, stock_rate=args.stock_rate)
+
+	asset_capitalization.insert()
+
+	if args.submit:
+		asset_capitalization.submit()
+
+	return asset_capitalization
+
+
+def create_stock_reconciliation(asset_capitalization, stock_rate=0):
+	from erpnext.stock.doctype.stock_reconciliation.test_stock_reconciliation import (
+		create_stock_reconciliation,
+	)
+	if not asset_capitalization.get('stock_items'):
+		return
+
+	return create_stock_reconciliation(
+		item_code=asset_capitalization.stock_items[0].item_code,
+		warehouse=asset_capitalization.stock_items[0].warehouse,
+		qty=flt(asset_capitalization.stock_items[0].stock_qty),
+		rate=flt(stock_rate),
+		company=asset_capitalization.company)
+
+
+def create_depreciation_asset(**args):
+	args = frappe._dict(args)
+
+	asset = frappe.new_doc("Asset")
+	asset.is_existing_asset = 1
+	asset.calculate_depreciation = 1
+	asset.asset_owner = "Company"
+
+	asset.company = args.company or "_Test Company"
+	asset.item_code = args.item_code or "Macbook Pro"
+	asset.asset_name = args.asset_name or asset.item_code
+	asset.location = args.location or "Test Location"
+
+	asset.purchase_date = args.purchase_date or '2020-01-01'
+	asset.available_for_use_date = args.available_for_use_date or asset.purchase_date
+
+	asset.gross_purchase_amount = args.asset_value or 100000
+	asset.purchase_receipt_amount = asset.gross_purchase_amount
+
+	finance_book = asset.append('finance_books')
+	finance_book.depreciation_start_date = args.depreciation_start_date or '2020-12-31'
+	finance_book.depreciation_method = args.depreciation_method or 'Straight Line'
+	finance_book.total_number_of_depreciations = cint(args.total_number_of_depreciations) or 3
+	finance_book.frequency_of_depreciation = cint(args.frequency_of_depreciation) or 12
+	finance_book.expected_value_after_useful_life = flt(args.expected_value_after_useful_life)
+
+	if args.submit:
+		asset.submit()
+
+		frappe.db.set_value("Company", "_Test Company", "series_for_depreciation_entry", "DEPR-")
+		post_depreciation_entries(date=finance_book.depreciation_start_date)
+		asset.load_from_db()
+
+	return asset
+
+
+def get_actual_gle_dict(name):
+	return dict(frappe.db.sql("""
+		select account, sum(debit-credit) as diff
+		from `tabGL Entry`
+		where voucher_type = 'Asset Capitalization' and voucher_no = %s
+		group by account
+		having diff != 0
+	""", name))
+
+
+def get_actual_sle_dict(name):
+	sles = frappe.db.sql("""
+		select
+			item_code, warehouse,
+			sum(actual_qty) as actual_qty,
+			sum(stock_value_difference) as stock_value_difference
+		from `tabStock Ledger Entry`
+		where voucher_type = 'Asset Capitalization' and voucher_no = %s
+		group by item_code, warehouse
+		having actual_qty != 0
+	""", name, as_dict=1)
+
+	sle_dict = {}
+	for d in sles:
+		sle_dict[(d.item_code, d.warehouse)] = {
+			'actual_qty': d.actual_qty, 'stock_value_difference': d.stock_value_difference
+		}
+
+	return sle_dict