Work in progress

Hi All,

Background:

Electrical Industry and we get some bulk order to manufacture some goods specific to customer requirements.

Here to get these orders we incur some expenses like airfare , some professional service fees which is a considerable amount.

The project will be completed in phases, i mean the delivery of the entire goods will not happen at the same time and it may happen over the period of year to two years.

 

Query: With this background, currently we are treating these enitire expenses incurred for getting the project as period expenses. Now we have an argument that these should be capitalised as work in progress and settle to P&L Account in proportion to goods delivery at the end of Fiscal Year.

 

Please clarify what is the standard Accounting treatment of these expenses. Which accounting principle or standard deals with it.

 

Regards

Venkat

 

Replies (1)

Cost of Obtaining a Contract For example cost of selling, marketting , advertising, bid, proposal, negotiations etc. needs to be expenses as and when incurred as period cost. The guidnace on this issue has been given in Para 59 Clause (a) of ED Revenue from Contract with Customers.

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