Pre Operative Expenses

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This query is : Resolved

K.Samish (Querist)

26 August 2007 whether pre operative exps incurred by a company
i)has to be entirely written off in the year when the company starts the production or
ii)in the year where there is adequate profits to absorb the same or
iii)it has to be amortized over a period of time.

CA Prasanna Krishnan V

CA Prasanna Krishnan V (Expert)

26 August 2007 Dear Sir

ICAI has given very detailed guidance note as to treatment for pre operative expenses as well as pre construction expenses.

Subject to certain minor deviations the online answer is-

It has to be amortized over a period of 3 to 5 years.

SRINATHA

SRINATHA (Expert)

27 August 2007 Hi Samish,

1. if pre-operative expenses are relatable to a particular asset, then the entire portion has to be capitablised.

2. if pre-operative expenses are not relatable to a particular asset, but can be established that it is incurred for the assets, then the same shall be allocated on the basis proportionate value of each assets bears to the total value of the asset. [( building / Total Fixed Assets) * Pre-operative Expenses].

3. If the pre-operative expenses are of revenue in nature, then it has to be amortised over a period of 3-5 years.

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