scope of prepaid exp

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CA.kaya (Querist)
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04 August 2009 would you please tel the scope of prepaid expenses.. wat and all includes in it.

1)whether the amt paid towards reneual of digital signature for two years, need to classify as prepaid or not .

2)uniform supplied to staff which is used for two years , need to classify prepaid or not

expecting professional ans

Bhaskaran Chackrapani Warrier

Bhaskaran Chackrapani Warrier (Expert)
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04 August 2009 Prepaid expenditure can be defined as the portion of a payment that relates to the value of services to be received in future accounting periods which will gradually expire or be used up over time. The assessment of prepaid expenditure is an important requirement of accrual accounting. Prepaid expenditure is included as an asset in the financial statements prepared by an entity.

In view of the above items 1) and 2) can be considered for segregating current/prepaid expenditure.

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CA.kaya

CA.kaya (Querist)
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05 August 2009 thank you sir but in second case how you classify prepaid portion. on which basis

Bhaskaran Chackrapani Warrier

Bhaskaran Chackrapani Warrier (Expert)
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05 August 2009 U may apportion the Cost of uniform on time basis.

Ratan Sharma

Ratan Sharma (Expert)
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05 August 2009 Hi,
Uniform expenditure, digital signature expenditure being misc expenses in nature may not be treated as prepaid expenditure. It is better to write it off in the year of expenditure itself. Uniform may or may not be used for more than 1 year therefore correct way is to treat such items as revenue expenditure.

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