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Jasmine (Querist)

22 February 2008 Hi all!

We are a ERP software development company started a year ago.We have now developed our base model.In this connection I would like to know as to how i should arrive at the product cost and how i should amortise the same over future years or whether i can expense the entire cost incurred for developing the ERP product as expenditure and write it off to the profit and loss account.

Kindly help me out with relevant provisions as per Co's Act and IT Act.

CA Saurabh Maheshwari

CA Saurabh Maheshwari (Expert)

22 February 2008 IN INCOME TAX ANY REVENUE EXP(SALRIES AND COST OF PURCHASE OF RAW MATERIAL)INCURRED UPTO 3 YEARS PRIOR TO COMMENCEMENT OF PRODUCTION IS FULLY ALLOWED IN THE YEAR OF COMMENCEMENT OF PRODUCTION .IN RESPECT OF CAPITAL EXPENDITURE ALL THE EXPENSES UPTO 3 YEARS PRIOR TO COMMENCEMENT OF PRODUCTION IS FULLY ALLOWED IN THE YEAR OF
COMMENCEMENT OF PRODUCTION (EXCEPT COST OF LAND).

R.V.RAO

R.V.RAO (Expert)

05 March 2008
THOUGH SRI SAURABHJI IS RIGHT ON LAW,
ANY EXPENDITURE WHOSE BENEFIT IS FELT AND WHOSE BENEFIT CANNOT BE SIMPLY EXPECTED TO BE ABSORBED IN A SINGLE YEAR, THEY ARE DEFERRED REVENUE EXP. TO BE WRITTEN OFF OVER A REASONABLE PERIOD OF TIME .
GOOD EXAMPLES ARE PRODUCT DEV. EXP. AND ADVERTISEMENT ETC...
SO YOU DO WELL TO TREAT PROD. DEV. COST AS DEFERRED REV. EXP.
THIS ALSO ANSWERS YOUR QUERY ON PRODUCT COSTING.
THE OPTIONS ARE OPEN AND YOU BE THE JUDGE.
R.V.RAO

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