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pre-operative expenses treatment

madhukar (student) (306 Points)

20 September 2007

hi buddies

pls let me know the treatment of pre-operative expenses

and where it shoulb be shown in the financial statement

pls clarify

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33 Replies

Prakash Popat (3134 Points)
Replied 20 September 2007

It can Be shown as Deffer ed Revenue expenditure/miscellaneous expenditure as per sch vi assets side and amortized as per project durations management policy,auditor's view...........

madhukar (student) (306 Points)
Replied 20 September 2007

whether the pre-operative expenses relating to fixed assets, to be capitalised or not? and what about the general pre-operative expenses which doesnot relate to the same?

Bhuvnesh (Chartered Accountant) (101 Points)
Replied 21 September 2007

Pre-Operative expenses of Capital Nature are to be capitalised with the cost of fixed assets in relation to which they have been incurred. Whereras pre-operative expenses if Revenue Nature are to be charged against the profits of the company in they year in which business has commenced.

1 Like

siddharth (C.A.) (175 Points)
Replied 21 September 2007

Hi Bhuvnesh, Can pre - operative expenses which is revenue in nature charged against the profits of the company in the year in which business has commenced be claimed as loss under the Income Tax Act?

Bhuvnesh (Chartered Accountant) (101 Points)
Replied 21 September 2007

Well you note a point: It is normal for a company at the inception of its business to make a loss. Now furthemore, where you are including the abovesaid pre-operative revenue expenses in the P&L statement for the first year, such expenses further add up to the losses made for the first year which can be claimed against the profit made for the subsequent 8 years. SO, yes the abovesaid pre-operative expenses can definately be claimed as loss under the Income Tax Act.

(Guest)

Want the answer to the question ASAP.

(Guest)

Can preoperative expenses which are of revenue nature be capitalised given the applicability of AS 26 (refer para 56)

Satish K Sekhar.ACCA (Service) (303 Points)
Replied 18 May 2008

PRE-OPERATIVE EXPENSES CAN BE CAPITALISED AND CAN BE AMORTIZED OVER A PERIOD OF TIME

Akhil Agrawal (student) (600 Points)
Replied 19 May 2008

the preoperative expenses of the revenue nature should be capitalized in the ratio of the Furniture & Fixtures: Plant & Machinery from the date of the First Sale made. For eg u take a shop on lease & pay lease rent from say sep. u strt the interiors/const/electrical work in the shop. the compltetion ends in dec & u start sale from the 1st of jan. then the exp of the rent of sep to dec paid will be the preoperative exp & will be capitalized on 01 jan in the ratio of the Furniture & Fixture( Also the interior work cost+ elecrical fitting cost) & Plant & machinery installed at that place on the basis that u paid that rent for the interiors/const/electrical work in that shop.

1 Like

shanky (Articled Assitant) (0 Points)
Replied 05 June 2008

Dear Sir/Madam,

I want to know about the treatment of pre operative expenses in financial statements as per companies act. Also specify which accounting policy is applicable to it or under which notification it is.

pl tell me the difference between preoperative & preliminary expenses.

(Guest)

what is pre-operative exp is there any diff between priliminary and pre-operative exp

(Guest)

hi friends,

Please let me know the treatment of Pre operative expenses under the Income Tax Act . Further unit purchased some Assets like computer , Vehicle etc. and started construction of building as on 1.1.2007. construction complted on 31.12.2007. Prepoerative exp. also capitalized on 31.12.2007. Prodction started on 1.11.2007 for trial run. Trial run exp & Sale also capitalized on 31.12.2007 in the ratio of fixed assets like building, P& M etc.

Actual production started as on 1.1.2008.

Query?

whether dep. can be claimed for the year 2006-07 under the income tax act 1961 while actual production date is 1.1.2008.

please mention case law or section which talks about the treatment of such expneses or fixed assets purchased prior to commecnement or actual prodcution?

Arun Choudhary (CA ) (65 Points)
Replied 12 September 2008

please clarify it----

can depreciation be charged before commencement of business in case of a newly formed company??? if yes..then as there is no P&L a/c..the same would be treated as pre operative exp..isn't it???

Anshu (Professional) (20 Points)
Replied 12 September 2008

how should the pre-operative expenses (other than those relating to preliminary expenses) which are revenue in nature be disclosed in the financial statements?