Treatment of trial run production cost

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Extract from IAS 10:

9.3 The expenditure incurred on start-up and commissioning of the project,

including the expenditure incurred on test runs and experimental production,

is usually capitalised as an indirect element of the construction cost. However,

the expenditure incurred after the plant has begun commercial production,

i.e., production intended for sale or captive consumption, is not capitalised

and is treated as revenue expenditure even though the contract may

stipulate that the plant will not be finally taken over until after the satisfactory

completion.

9.4 If the interval between the date a project is ready to commence

commercial production and the date at which commercial production

actually begins is prolonged, all expenses incurred during this period are

charged to the profit and loss statement. However, the expenditure incurred

during this period is also sometimes treated as deferred revenue

expenditure to be amortised over a period not exceeding 3 to 5 years after

the commencement.

Originally posted by : CMA Bhaskar Unnikrishnan MBA
	Extract from IAS 10: 9.3 The expenditure incurred on start-up and commissioning of the project, including the expenditure incurred on test runs and experimental production, is usually capitalised as an indirect element of the construction cost. However, the expenditure incurred after the plant has begun commercial production, i.e., production intended for sale or captive consumption, is not capitalised and is treated as revenue expenditure even though the contract may stipulate that the plant will not be finally taken over until after the satisfactory completion.   9.4 If the interval between the date a project is ready to commence commercial production and the date at which commercial production actually begins is prolonged, all expenses incurred during this period are charged to the profit and loss statement. However, the expenditure incurred during this period is also sometimes treated as deferred revenue expenditure to be amortised over a period not exceeding 3 to 5 years after the commencement.

which means you can consider it as experimental production, and capitalised as an indirect element of the construction cost.

Dear Bhasker,

I did not find the section mentioned by you on trial run cost in IAS 10. Pls help me to understand.

Regards

Shoumitra