Change in accounting policies

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Vineet Agarwal

Chartered Accountant

54 Points Posted on 13 September 2011

hello,

Can anyone help with respect to the folloing queries:

M/s X private limited is engaged in construction business basically related to development of house properties.

Previously all the general expenses like filing fees,audit fees,trade licence fees and profession tax etc.were debited to P/L A/c.Other than this expenses all were capitalised to WIP.

Now M/s X Private ltd. is arguing to capitalise all such expenses(Current and previous year) to WIp as the company is soley engaged in COnstruction business and the activity at site is still in progress whcih means there will be no accumulated losses and simultaneouly no expenses will be shown in P/L A.c.

Is the above procedure possible.?

Thank You

Replies (4)

Keval

Consultant

94 Points Posted on 13 September 2011

Dear Vineet,

I think that all the above expenses are general in nature. Further company has to incure such expenses even if the construction stop for eg:- Some employee who may not be on construction site as they are hired for administration purpose, capitalising the profession tax of employee hired for administration purpose does not seems to be advisable. Adding to that the mentioned expenses are not directly attributable to the particular contract. M/s X is advised not capitalise the expenses.

Regards

Bhaskar Unnikrishnan CPA CMA

Accounts / Administration

303 Points Posted on 14 September 2011

Dear Vineet,

To my view, it is illogical to assign general expenses such as professional service fee, audit fee etc. to particular construction contract WIP. It can be considered as head office support to construction contract and should be allocated to these contracts on reasonable basis (cause and effect method) such as Aditors time allocated to particular contract etc. and should be shown on the P&L account, not WIP Inventory.

Best REgards,

Bhaskar