Preoperative expenses

Save Share

This query is : Resolved

Neeraj (Querist)

22 July 2012 Sir,
In an audit i came across the situation wherein a pvt. co. has incurred expenses after incorporation but before the commencement of production that embrace salary to staff,bank interest,rent and other expenses Rs.25,00,000.Accountant after the start of production has transferred the same to plant & machinery account.I've objected but i am confused as to under which head this should be capitalized.Given that the asset is not the qualifying asset & concern is a manufacturing entity.Please guide
In the given case there is neither any construction of asset nor the asset qualify for the borrowing cost purposes.The concern is cardinally engaged in the business of making mould of printing on iron shell.

Sanjay Chauhan (IFRS)

Sanjay Chauhan (IFRS) (Expert)

22 July 2012 Expenditure incurred during construction period is eligible for capitalisation before the assets are ready for commercial use as intended by management.

Administrative expenditure that are not directly incurred for construction are expensed as incurred.

All the eligible expenses including eligible interest as per borrowing cost are to be allocated to the assets in th erayio of their capitalised book values.

if the value of Plant & Machinery is substantial, entities can capitalise the entire expenditure in one head.

Hope this addresses your query..