CMA Purushottam Deshmukh (Executive Costing) (180 Points)
12 May 2011Whether Processing Fees which are preliminary Expenses written off over a period of 10 years, if useful life of Asset is 20 years or whether these will have to be written off in 5 years ???
Desperado
(Cost And Management Accountant)
(129 Points)
Replied 13 May 2011
Dear,
The best practise is to write off the preliminary expense in the first year of operation.
However, It should be decided by the management as to whether it should be written off in the first year or to be deferred and amortised, since, management may have certain reservations that it should avoid to expense out in the first year or situation may also be contrary. Normally, Expending out a huge sum in the first year of operation could negatively effect the profitability at the outset, which might be against the plans of the management.
Contrary to the aforesaid, income tax law specifies and allows to amortised the same over the period of 5 years.
I hope you have been replied.
Best Regards,
Desperado.
CMA Purushottam Deshmukh
(Executive Costing)
(180 Points)
Replied 13 May 2011
But Sir, it is as per Companies Act know.
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