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TREATEMENT OF PRE OPERATIVE EXPENSES

VENKATASAI (STUDENT) (26 Points)

16 April 2019

I have started an entity and completed incorporation.
Prior to commencement are all the expenses are to be capitalised Or charged to P&L
please provide solution

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9 Replies

Giridhar S Karandikar (Team Lead) (7548 Points)
Replied 16 April 2019

they need to capitalized and then amortized to revenue on systematic basis considering their nature.

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VENKATASAI (STUDENT) (26 Points)
Replied 16 April 2019

I think the above treatment is for preliminary expenditure

Spurto Consultancy Services (Consultant) (1891 Points)
Replied 16 April 2019

Pre operative expenses if of capital nature then shall be added with the cost of the Fixed Asset.

Whereas if the expenses are revenue in nature then charge to P/L A/c.

Giridhar S Karandikar (Team Lead) (7548 Points)
Replied 16 April 2019

but if they are incurred prior to commencing the business then these need to be capitalized even if they are revenue in nature. correct me if am wrong. we can't charge them to revenue as the matching concept wud not be met

HARIOM SHARMA (GENERAL MANAGER-FINANCE AT NSEZ A GROUP OF COMPANIES) (67 Points)
Replied 17 April 2019

All Expenses prior to commencing business have to be booked as Pre-Operative Expenses and subsequently has to be allocated on respective fixed assets in appropriate ratios.

Please note all expenses prior incorporation needs to be separately treated as preliminary expenses.

Hope this will clarify your doubts.

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Ankit Varshney (91 Points)
Replied 18 April 2019

Originally posted by : Spurto Consultancy Services
	Pre operative expenses if of capital nature then shall be added with the cost of the Fixed Asset. Whereas if the expenses are revenue in nature then charge to P/L A/c.

faisal pari (Accountant) (46 Points)
Replied 22 October 2020

Hi,

Going to start new supermarket, until now we spend almost 13 lakh Rs, for Rent, License fee, Building painting, tiles work, electrical, plumbing, Supermarket shelf and other equipment, and Air condition(Split), Shelf work, Office cabin work, ..........etc.

i put all expenses in Pre operating expenses. what i will do fixed assets and others.

any one can explain to me deeply, entries......etc.

Thanks and appreciated fro the reply.

faisal pari (Accountant) (46 Points)
Replied 22 October 2020

Hi,

i put all expenses in Pre operating expenses. what i will do fixed assets and others.

any one can explain to me deeply, entries......etc.

Thanks and appreciated fro the reply.

Sumedha Ghosh (Student) (22 Points)
Replied 24 May 2021

Expenses that are incurred prior to setting up a business could be Preliminary expenses or Pre-Operative Expenses. The Pre-Operative expenses have to be capitalized and written off within 5 years as per Sec 35D. They are to be shown under Miscellaneous Head on the Asset Side.