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pre-operative expenses treatment


hi buddies

pls let me know the treatment of pre-operative expenses

and where it shoulb be shown in the financial statement

pls clarify

 

 


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It can Be shown as Deffer ed Revenue expenditure/miscellaneous expenditure as per sch vi assets side and amortized as per project durations management policy,auditor's view...........

 
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whether the pre-operative expenses relating to fixed assets, to be capitalised or not? and what about the general pre-operative expenses which doesnot relate to the same?

 
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Chartered Accountant


Pre-Operative expenses of Capital Nature are to be capitalised with the cost of fixed assets in relation to which they have been incurred. Whereras pre-operative expenses if Revenue Nature are to be charged against the profits of the company in they year in which business has commenced.


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Hi Bhuvnesh, Can pre - operative expenses which is revenue in nature charged against the profits of the company in the year in which business has commenced be claimed as loss under the Income Tax Act?

 
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Chartered Accountant


Well you note a point: It is normal for a company at the inception of its business to make a loss. Now furthemore, where you are including the abovesaid pre-operative revenue expenses in the P&L statement for the first year, such expenses further add up to the losses made for the first year which can be claimed against the profit made for the subsequent 8 years. SO, yes the abovesaid pre-operative expenses can definately be claimed as loss under the Income Tax Act.

 
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(Guest)

Want the answer to the question ASAP.

 
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(Guest)

Can preoperative expenses which are of revenue nature be capitalised given the applicability of AS 26 (refer para 56)

 
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PRE-OPERATIVE EXPENSES CAN BE CAPITALISED AND CAN BE AMORTIZED OVER A PERIOD OF TIME

 
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the preoperative expenses of the revenue nature should be capitalized in the ratio of the Furniture & Fixtures: Plant & Machinery from the date of the First Sale made. For eg u take a shop on lease & pay lease rent from say sep. u strt the interiors/const/electrical work in the shop. the compltetion ends in dec & u start sale from the 1st of jan. then the exp of the rent of sep to dec paid will be the preoperative exp & will be capitalized on 01 jan in the ratio of the Furniture & Fixture( Also the interior work cost+ elecrical fitting cost) & Plant & machinery installed at that place on the basis that u paid that rent for the interiors/const/electrical work in that shop.


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