right issue exp

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patel nitin (Querist)

26 March 2010 right issue exp should expensed out in the year of right issue or it should be treated as deferred revenue expenses

M Prabhakar Menon

M Prabhakar Menon (Expert)

26 March 2010 Treating any expense as deferred is the managements' prerogative and is disclosed as the accounting policy of the company.Which ever option you select it should be disclosed appropriately under the accounting policy of the company in its annual accounts.

Bhaskaran Chackrapani Warrier

Bhaskaran Chackrapani Warrier (Expert)

26 March 2010 Share issue expenses is capital expenditure. Supreme Court decision in the case of Brook Bond India Ltd Vs. CIT (1997) 225 ITR may be referred.

Madhusudan Bohra

Madhusudan Bohra (Expert)

26 March 2010 how should this be capitalised. under what head.

shakuntala chhangani

shakuntala chhangani (Expert)

01 April 2010 Hi everybody, if we go as per AS 26, it should be expensed in the year in which it is incurred as it does not meet the recognition criteria.
Regards, CA Shakuntala Chhangani

Bhaskaran Chackrapani Warrier

Bhaskaran Chackrapani Warrier (Expert)

01 April 2010 Yes Madam. You have mentioned the accounting part whereas my reply was based on the taxation part which ,I think now, was not sought for by Mr. Bohra.

M Prabhakar Menon

M Prabhakar Menon (Expert)

01 April 2010 If the entire expense is not written off in the year in which it is incurred but spread over a number of years its a deferred revenue expense U debit Rights Issue Expense A/c with the total amount and transfer either the whole of it or a part of to the P & L A/c every year,however the amount transfered to the P & L A/c should be the same amount every year,The Debit balance not written off will appear in the B/Sheet under "Miscellaneous Expenditure" (Not written Off or Adjusted)

shakuntala chhangani

shakuntala chhangani (Expert)

08 April 2010 That is not allowed after AS 26 becomes mandatory (1.4.2003/1.4.2004).
ICAI clarification :
The expenditure incurred on intengible items treated as deferred revenue expenditure, spread over a period of 3-5 years before AS 26 became mendatory and which do not meet the definition of an asset as per AS 26 such as exp. incurred in respect of lump sum payment towards a voluntary retirement scheme(VRS), preliminary exp. share issue exp. etc. should continue to be expensed over a no. of years as originally contemplated.
It is not considered proper to adjust the balances of such items against revenue reserves by applying the transitional provisions.
The expenditure incurred on intangible items after the date AS 26 becomes mandatory would have to be expensed when incurred since these do not meet the definition of an asset as per AS 26.
Regards, CA Shakuntala Chhangani

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