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Pre commencement Sale or purchase

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Priyal Bhargava

17 Points Posted on 02 June 2023

My client (a private limited company, manufacturing unit) started a business and all the assets are currently at WORK IN PROGRESS stage, In FY 2021-22 ,all the expenses were termed as pre operative expenses and some are capitalised.
But now in FY 2022-23 , Assets are still at WIP stage, but they purchased (finished goods)some items and directly sold them.
Now, what should be the accountinf treatment?
should I include purchase and sale in P&L account, and other expenses as pre operative expenses?
or should I include everything in p&l and write off the earlier pre operative expenses??

Replies (2)

Quick Summary

This discussion explores the correct accounting treatment for a manufacturing company with assets still in the Work in Progress (WIP) stage. The company made pre-commencement purchases of finished goods and sold them in the current financial year. The core question is whether to treat these sales and purchases through the P&L account while continuing to classify other expenses as pre-operative, or to include all transactions in the P&L and write off prior pre-operative expenses. The preferred option is to manage sales and purchases via the P&L.