Urgent query on precommencement expenses

Hi,

My query is if well established Company has started a business at new loaction (new branch i.e. only the expansion of  existing business) then what should be the treatment of  "Pre-commencement Expenses". 

Our CA suggested to capitalise all the precommencement expenses.

On the basis of his opinion, we started capitalising all expenses. Accountant has capitalised the expenses of snacks bill of labour, rent of the place and all miscellenous expenditures. Is this a correct treatment?

If it is to be capitalised then what should be the head of Account? And how it should be written off?

Please give me the reference of cases also.

Thanks in advance...

Replies (1)

Dear Riddhi,

 

Yes your CA is right...since these expenses are related to the expansion and setting up of a totally new unit, they are to be capitalised. you may put them under the head ... Factory at XYZ (name of the place).

but why capitalse petty expenses like snacks and all?? you can straight away write them off as expenses.

 

the Capitalised expenses will then be written off by charging depreciation on them

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