Allocation of pre-operative expenses

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VIPIN KUMJAR (Querist)

09 December 2011 What should be the basis for allocation of pre-operative expenses at the time of first time capitalisation.

1. Total expenses incurred on accrual basis
2. Cash expenses incurred (total exp-creditors)
3. Total expenses+allocated interest on term loan taken for the purpose of capital expenses
4. Any other basis if any.

Hari Beldona

Hari Beldona (Expert)

09 December 2011 Preoperative expenses are those which are connected with the actions that are required for start up of operations. Preoperative expenditure can therefore be capitalized by apportionment/allocation to assets which are subject matter of operation.
for example operating assets are:

Plant & Machinery RS 100
Equipments RS 50
Lab Rs 25

Preoperative expenses are RS 70
Rs 70 is to be apportioned to the above assets in the ratio of 4:2:1

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VIPIN KUMJAR

VIPIN KUMJAR (Querist)

10 December 2011 Dear Mr. Beldona your reply is not clear about the basis that will be used for define the ratio.

VIPIN KUMJAR

VIPIN KUMJAR (Querist)

10 December 2011 Dear Mr. Beldona your reply is not clear about the basis that will be used for define the ratio.

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