Allocation of pre-operative expenses

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VIPIN KUMJAR (Querist)
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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)
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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)
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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)
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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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