26 August 2007
whether pre operative exps incurred by a company i)has to be entirely written off in the year when the company starts the production or ii)in the year where there is adequate profits to absorb the same or iii)it has to be amortized over a period of time.
1. if pre-operative expenses are relatable to a particular asset, then the entire portion has to be capitablised.
2. if pre-operative expenses are not relatable to a particular asset, but can be established that it is incurred for the assets, then the same shall be allocated on the basis proportionate value of each assets bears to the total value of the asset. [( building / Total Fixed Assets) * Pre-operative Expenses].
3. If the pre-operative expenses are of revenue in nature, then it has to be amortised over a period of 3-5 years.
CAclubindia
