Hello to All,
Can you tell me the treatment of Pre operartvive expenditure ? AND can we apportion the preoprative expenses to wip building & WIP Medical Equipments accourdint to weighted average cost?
2 Replies
Shubhankar Limaye
(B.Com.)
(174 Points)
Replied 09 August 2010
Preoperative expenditure would normally comprise of Expenses directly attributable to acquisition/ construction of Fixed Assets, Interest Expense and General Administrative expenditure.
Out of these, Expenses directly attributable to acquisition/ construction of Fixed Assets (which normally do not include Administrative expenses) shall be capitalised as a part of cost of fixed asset.
Interest cost shall be capitalised if permitted by AS-16.
And all remaining expenses shall be expensed.
Therefore answers to your questions are:
1. Preoperative expenses other than Expenses directly attributable to acquisition/ construction of Fixed Assets and Interest Expense are to be expensed directly.
2. Preoperative expenses cannot be directly capitalised to Construction WIP on weighted average cost basis as whole of preoperative expenses are not necessarily incurred for acquisition or construction of Asset.
Accounting Standards referred: AS-10. AS-16, AS-26
There was a Guidance Note issued by ICAI on Preoperative expenditure which has been withdrawn.
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