Treatment of pre operating expenses

This query is : Open

Querist : Anonymous

Querist : Anonymous (Querist)

21 March 2015 Dear Professionals
I have a query:
A company incorporated 5 yr ago. The Company have two business
1) Exporting CAD Designs to its holding Company (work place :work from home)
2) manufacturing - operation not yet started , only training work is going on (Work place: factory)
Company have expenditure related to :
1) Staff salary(both for delhi office and factory)
2) electricity, water , telephone etc expenses (Factory site only)
My question is:
1) Whether company has to treat factory related expenses as pre operative expenses?
2) What is the treatment of expenditure done at factory site in balance sheet.
Thanks in advance .

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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21 March 2015 After the issue AS 10, all the expenditure related to acquiring the asset got shifted out from preoperative expenditure and formed part of capital work-in-progress.

Preoperative expenditure was shrunk further with the issue of AS 16, requiring the interest on loans and borrowing costs to be capitalised to the respective asset.

Consequent to the issue of AS 26, the preliminary expenditure is written off totally in the year of incorporation of the company and does not appear in the balance-sheet any more.

The residual portion of preoperative expenditure consisted purely of administrative costs.

AS 26 requires all that expenditure which does not result in future economic benefits be expensed out in the year in which it is incurred.

Querist : Anonymous

Querist : Anonymous (Querist)

21 March 2015 Thanks for your valuable reply
Here wish to add few questions to clear my doubts
1) Whether all admin expenses related to office will be treated as revenue exp, & charge to p & l?
2) Whether concept of pre operating expenses should not be apply hear, as company is already earning from some other sources of business?i.e CAD designing service.
3) what is treatment of such expenses in Income tax, whether it can be claim as exp u/s 28 to 36 or 37 or written of as per section 35D?

Also if possible for you please guide me about the treatment of Building & factory area constructed and one portion is used for office purpose only? Whether depreciation will be charged , as production not yet started...

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