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Pre Oprerative expenses

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This query is : Resolved

Akhilesh Jhanjhari (Querist)

04 June 2011 I am auditing a company. It has changed its name to another name and also changed its manufacturing activity.
it has transferd the expenses up to the starting of production activity to PRE OPERATIVE EXPENSES.
is it right ?
I want to know all about pre operative expenses.
plz reply soon.

thanks.

Pankaj Gandhi Jaiswal

Pankaj Gandhi Jaiswal (Expert)

04 June 2011 Dear Akhilesh pre operative expenses is a debatable issue. In Income Tax and accounting practice there are some confliction. Some of ITO disallow whole of the preoperative expenses debited in a profit loss account saying this is before start of commercial production,while they should allow on ground before start of business and not before start of commercial production, so in my opinion company can do lot of business expenses for buying Raw Material hiring marketing personal and hiring production people before start of commercial production so this should be allowed as expenses.But in a case IT accepts after trail rum but in my view which expenses which we can not capitalize because they are not a part or allocable to capex must be debited to PL account and should be allowd.

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