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Why do we write preliminary expense in balance sheet as assets rather to consider expense section or accrued liability?

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Question ajoutée par BILAL IQBAL , Officer Financial Controller , Union National Bank
Date de publication: 2014/04/08
Muhammad Saad Riaz
par Muhammad Saad Riaz , Senior Accountant (Netback) , Muntajat

According to IAS16 

An item of property, plant and equipment should initially be recorded at cost. [IAS16.15] Cost includes all costs necessary to bring the asset to working condition for its intended use. This would include not only its original purchase price but also costs of site preparation, delivery and handling, installation, related professional fees for architects and engineers, and the estimated cost of dismantling and removing the asset and restoring the site

 

capital expenditure is an amount spent to acquire or improve a long-term asset such as equipment or buildings. Usually the cost is recorded in an account classified as Property, Plant and Equipment. The cost (except for the cost of land) will then be charged to depreciation expense over the useful life of the asset.revenue expenditure is an amount that is expensed immediately—thereby being matched with revenues of the current accounting period. Routine repairs are revenue expenditures because they are charged directly to an account such as Repairs and Maintenance Expense. Even significant repairs that do not extend the life of the asset or do not improve the asset (the repairs merely return the asset back to its previous condition) are revenue expenditures. 

Vinod Jetley
par Vinod Jetley , Assistant General Manager , State Bank of India

Any capital expenditure done before the commencement of operation of specified business, then such expenditure is allowable as deduction under the income tax in5 equal annual installments subject to the fulfillment of different conditions given under the Income tax Act.

Following preliminary expenditure are eligible for deduction

  1. Allowable if work is done by assessee himself or by an approved concern
  • Preparation of project report
  • Market and other survey cost
  • Engineering service charges
  1. Allowable always whether work is done by assessee himself or by any concern (approved or unapproved)
  • Drafting of MOA and AOA
  • Printing of MOA ,AOA and prospectus
  • Share issue expenditure e.g. underwriting commission, brokerage, etc
  • Legal charges for preparing partnership deed, etc
  • Registration fee under any Act
  • Any other expenditure which is prescribed

Time and purpose of preliminary expenditure

Time  & Purpose

Before commencement of business:To start a business

After commencement of business:For expansion of existing business

 

Who is Eligible to claim such deduction

  • Indian company
  • Other assessee who is a resident

Note: foreign company is not eligible for deduction even it is a resident in India

Note that this is allowable & is not compulsory. If the assessee wishes , it can charge these expenses, as and when they occur. However, to give a true picture of the operations of a company in any given year, these expenses are defrayed over a number of years (maximum-5 years, as per Indian law).

 

Ahmed Magdy Mohamed Ahmed
par Ahmed Magdy Mohamed Ahmed , Regional purshasing manager assistant , BIM Stores

becuase it is expense I should paid it un the future, but I paid it in erlier time for the future so its mine and I can back if i was wanting.

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