Capitalisation of salary cost

975 views

Save Share

Amol Changedia

Partner

23 Points Posted on 16 June 2014

Hello,

One of my client is a software developers and as well as social networking sight developer. He was expecting new contracts to be procurred during the year and hence he recruited new employees for the same in FY 2013-14. Howerver he was not able to get the contract in FY 2013-14 but got the contract in FY 2014-15.

Due to extra employee recruitment, Profit and loss is showing below par profit.

Can we capitalise the extra employee cost saying the same as new project development just to avoid profits to be shown below par?

Replies (3)

Shivani Mittal

Practice

323 Points Posted on 18 June 2014

In my opinion, it cant be capitalised as it has been incurred for obtaining a contract and not for project development. The two terms are very different technically and obtaining contracts is a part of regular business fuctioning.

Regards

CA Shivani Mittal

Shivani & Associates

Pratik CA Final

Article Assitant

101 Points Posted on 18 June 2014

I agree with Miss Shivani,

As the cost of such employee was not for developing any asset rather it is of a revenue nature so it cannot be capitalise. The company's source of revenue is software development therefore the expenses shall be treated as a revenue expense. It will be better as you will be getting a loss to set off with the next years business profit.

Amol Changedia

Partner

23 Points Posted on 18 June 2014

Thanks your your reply. But the problem is transfer pricing is applicable to the company and the revenue in the current year is only from parent company. So showing losses will be a problem.