Pre-Operative Expenditures

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Pre-operative expenditures incurred before a business commences operations require careful accounting. While a consultant may have allocated them to fixed assets, this is often incorrect. Generally, expenses providing benefits for less than a year should be debited to the Profit & Loss account, whereas long-term expenditures should be capitalised on the Balance Sheet. Trail run expenses for equipment, for instance, should be capitalised.

daksha upadhyay

daksha upadhyay (Querist)

09 March 2020 Our company has incurred expenses before commencement of business. and our consultant has posted that expenses in all fixed assets proportionately. is this right accounting treatment? if not than what is the right accounting treatment of Pre-operative expenditure? Please Guide on this.

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)

09 March 2020 Charge off such expenses over a period of 5 years.
Capitalise trail run expenses of equipment.

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daksha upadhyay

daksha upadhyay (Querist)

09 March 2020 Thank you for your reply. What is the accounting entries to be passed in Tally???

Aashok Kumar Sharma

Aashok Kumar Sharma

(Expert)

22 May 2020 I think all expenses the benefit of which is less than one year should be debited to PL and all expenditures which are for long term period should be capitalised in BS.

Expenses - Dr.
Proprietors/Partners - Cr.

and

Assets - Dr.
Proprietors/Partners - Cr.

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