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Treatment of Pre-operative Expenses

B.S.Bhat (Service) (23 Points)

09 June 2008

Please let me know the treatment of following in case of newly formed company.The details are:

1.The company formed 24/12/2007

2.As on 31/03/2007 commercial production not commenced

3.Preliminary exp say Rs.3L

4.Pre-operative Exp inclusive of salary,telephone charges,travelling etc.,say 16L

5.All the above expenses were incurred in pursuance of a project which will commence commercial production w.e.f.1.1.2008

6.My company is a small company with paid up capital of Rs.1L

Is AS 26 is applicable and if yes to what extent

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Priya Shinde (Article clerk) (28 Points)
Replied 10 June 2008

Accounting Standard (AS) 26, ‘Intangible Assets’, issued by the Council of the Institute of Chartered Accountants of India, comes into effect in respect of expenditure incurred on intangible items during accounting periods commencing on or after 1-4-2003 and is mandatory in nature2 from that date for the following:

i. Enterprises whose equity or debt securities are listed on a recognised stock exchange in India, and enterprises that are in the process of issuing equity or debt securities that will be listed on a recognised stock exchange in India as evidenced by the board of directors’ resolution in this regard.

ii. All other commercial, industrial and business reporting enterprises, whose turnover for the accounting period exceeds Rs. 50 crores.

In respect of all other enterprises, the Accounting Standard comes into effect in respect of expenditure incurred on intangible items during accounting periods commencing on or after 1-4-2004 and is mandatory in nature from that date.

so it will not apply...Capitalise pre operative expenses.