Trial production accounting

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

17 June 2015 Date of Trial Production of a company 23-03-2015 to 31-03-2015

Date of Commercial Production is 01-04-2015

The stock that was generated during Trial Production till 31-03-2015 was sold after the commercial production in april 2015 and there is loss of around 31 lakhs for the stock sold.
what would be the accounting treatment for the same. whether the loss would be capitalised or to be treated as revenue expenditure ?
kindly guide for the same.

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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17 June 2015 The loss will be capitalized to the equipment under trial operation.

Querist : Anonymous

Querist : Anonymous (Querist)

17 June 2015 can you please provide the relevant provisions.

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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17 June 2015 See AS-10 para given below:

9.4 The expenditure incurred on start-up and commissioning of the project,
including the expenditure incurred on test runs and experimental production,
is usually capitalised as an indirect element of the construction cost. However, the expenditure incurred after the plant has begun commercial production, i.e., production intended for sale or captive consumption, is not capitalised and is treated asrevenue expenditure even though the contract may stipulate that the plant will not be finally taken over until after the satisfactory completion of the guarantee period.

Querist : Anonymous

Querist : Anonymous (Querist)

17 June 2015 since the sale of the production has taken place after the commercial production, why should it not be treated as an revenue item.

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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18 June 2015 It is trial production loss which has to be capitalized as per the requirement of Accounting standard. When sales taken place is immaterial.