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Expenses Incurred during trial run

Akansha jain (CA) (156 Points)

18 September 2023

what should be the accounting treatment of the expenses incurred during the trail run of the new product (chemical) by the company?

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24 Replies

prasad Nilugal ( GST Practitioner & Accounts ) (14183 Points)
Replied 18 September 2023

correcting my earlier reply , If it is a Manufacturing company , then you can show as a New product Expenses under Direct Expenses .

RAJA P M ("Do the Right Thing...!!!") (127229 Points)
Replied 18 September 2023

@ Akansha Jain.,
Can You give some of the expense list...???

Akansha jain (CA) (156 Points)
Replied 18 September 2023

Chemicals(input), labour, electricity

RAJA P M ("Do the Right Thing...!!!") (127229 Points)
Replied 18 September 2023

As per my view,
If it's new product and its also under development then It will be treat as R&D. This R&D will be account as R&D under Current Asset...

After the successful development and put into business/Production it will be taken into expenditure head as per movement...

(This is my view)

prasad Nilugal ( GST Practitioner & Accounts ) (14183 Points)
Replied 18 September 2023

R & D is correct words agree, however I will treat this as ( Operating expenses) Direct expenses , also such type of expenses are allowed as deduction under section 35 Income tax act 1961 . ( Research & Development Expenditure )

RAJA P M ("Do the Right Thing...!!!") (127229 Points)
Replied 18 September 2023

Read once again my reply, and try to understand the procedure (and Operating Expenses)...

R&D is not just a word, also it's not acceptable as a word...

Again I say , It can be trf to expenditure. But, not at the time of new product development. before it's completion it's not acceptable as expense...

After completion of development, it can be Sell or Use into production and trf to expenditure head...

(pls avoid such as "INCOME TAX ACT, GST ACT & ANY OTHER ACT". I'm on ot interest these kind of words).

sabyasachi mukherjee (26132 Points)
Replied 19 September 2023

Deferred revenue expenditure.
benefit to accrue over the life time of the asset.

Yasaswi Gomes new (Finance ) (4486 Points)
Replied 20 September 2023

Direct expense and chemical used in yiur factory is a raw material used for production.

Yasaswi Gomes new (Finance ) (4486 Points)
Replied 20 September 2023

There is cost allocation techniques in costing but you check that out. AS 26.46.d the design, construction and testing of a chosen alternative for
new or improved materials, devices, products, processes, systems
or services.

You have to remwmber that research phase is slightly different than develeopment phase. AS10 also capitalises all testing expenses.

Yasaswi Gomes new (Finance ) (4486 Points)
Replied 20 September 2023

If this fails or succeeds, trial and err cost allocations. Everything is meaningful but just cross verify that.

Yasaswi Gomes new (Finance ) (4486 Points)
Replied 20 September 2023

Originally posted by : RAJA P M
	As per my view,If it's new product and its also under development then It will be treat as R&D. This R&D will be account as R&D under Current Asset...After the successful development and put into business/Production it will be taken into expenditure head as per movement...(This is my view)

@ Raja PM i thought you got carried away with tally. But i dont believe in tally. Your accounting is accurate though. The biggest flaw is, Research activities are expensed amd development capitalised. Your cool but what is the truth? I purchased new chamical and used it to test it and what is the principle number which says that? If R&D is just a ledger in tally then

Dr. R$D - expense

Cr. Bank

For research phase

Dr. R$D - asset

Cr. Bank

How will tally recognise this transaction? Lol

RAJA P M ("Do the Right Thing...!!!") (127229 Points)
Replied 20 September 2023

Hello Mr ....

Tally is a software...lol

Ledger is a book/note....lol

But, Accounting is not as above...lol

Research activities can't accounting directly to expenditure head...lol

If Research succesful then the said products come into force to sales and its income...lol

If Research unsuccesful then the said products fall and its to loss...lol

In case the research continues then its can't account to PandL...lollll...

I'm not a child using lol...

But, I can handle children with their way as lol....

Yasaswi Gomes new (Finance ) (4486 Points)
Replied 20 September 2023

Since you ppl believed tally is multiple, lets take an example of r n d

There is a masters created within by default. But we have to create stock item masters with purely direct and indirect coats as no R$D pops up.

So classification is wrong!

The usual accounting entry is

Dr. Purchase

Cr. Payables

With the stock item this is what happens

Dr. Stock item - under what? Under Research or development?

Cr. Bank

Does it make sense at all? My entry is correct though.

Yasaswi Gomes new (Finance ) (4486 Points)
Replied 21 September 2023

Lol and I am really fine. There is nothing wrong with you trying to protect your reputatuon. That AS 26 lol your fine but this better

No intangible asset arising from research (or from the research
phase of an internal project) should be recognised. Expenditure on
research (or on the research phase of an internal project) should
be recognised as an expense when it is incurred. Lol

Lol Mr.