Pre operative expenses

Yes.. Thats what you do ..

This approach is right while filing IT return. But while preparing Balance sheet As per new schedule VI of Companies Act, where should the PREOPERATIVE EXPENSES be classified?

No reason to think that the accounting treatment should be different... It will still be treated as an asset which needs to written off over a period of time. As far as disclosure is concerned , it should be disclosed under misc exps head .. Let me know your thoughts, if they are any different. thanks

This is what we all did earlier. But now, The head "Misc exp" does not exist anymore in the new schedule VI. There are only current and noncurrent assets. As per my understanding, preoperative expenses are not ASSETs, so they should be expensed out in the year they are incurred. As per AS 26, An intangible asset should be recognised if, and only if: (a) it is probable that the future economic benefits that are attributable to the asset will flow to the enterprise; and (b) the cost of the asset can be measured reliably. Expenditure on an intangible item should be recognised as an expense when it is incurred unless: (a) it forms part of the cost of an intangible asset that meets the recognition criteria (see paragraphs 19-54); or (b) the item is acquired in an amalgamation in the nature of purchase and cannot be recognised as an intangible asset. If this is the case, this expenditure (included in the cost of acquisition) should form part of the amount attributed to goodwill (capital reserve) at the date of acquisition (see AS 14, Accounting for Amalgamations). Examples of other expenditure that is recognised as an expense when it is incurred include: (a) expenditure on start-up activities (start-up costs), unless this expenditure is included in the cost of an item of fixed asset under AS 10. Start-up costs may consist of preliminary expenses incurred in establishing a legal entity such aslegal and secretarial costs,expenditureto open a new facility or business(pre-opening costs) or expenditures for commencing new operations or launching new products or processes (pre-operating costs); (b) expenditure on training activities; (c) expenditure on advertising and promotional activities; and (d) expenditure on relocating or re-organising part or all of an enterprise.

You are right .. For schedule 6.. It must be treated as per as 26, and it does clearly state to trf to p/l a/c .. except in cased where as 26 doesnt apply ..

Yea you can..........

Right .. But Nithin .. thats not enough .. maybe you can elaborate..

Yes you can capitalize the expenses while filing the return....and while making balance sheet according to Revised schedule-VI the expenses will be shown under the head other Non-current assets.

preop expenses can be considered as capital and allocated to Fixed assets only if it relates to any project like construction, manufacturing etc. For normal businesses, it should be expensed and these are not non current assets as these are not converted into money after 1 year.

Whether we have to prepare profit and loss for such preliminary exp.?

As per revised schedule VI - Misc. expenditures should disclosed under heading "Reserves & Surplus". Accounting practice does not make any difference b/w preliminary & preoperative expenses.

Therefore, preoperative expenses are part of reserves & surplus as per accounting & allowable as per section 35D.

 

waiting for learing response

Yes I agree with Mr Rohit, He is correct as per revised schedule VI all preliminary expenses shall be shown under the head of Reserve & Surplus for beter presentation of true financial position of the company. But according to income tax purpose it shall be treated as Misc Asset u/s 35D and amortise as per Income Tax Act