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PRELIMINARY EXPENSES & PRE-OPERATIVE EXPENSES

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PRELIMINARY EXPENSES & PRE-OPERATIVE EXPENSES

Postby parikshitmehendale » Mon Sep 03, 2007 8:13 pm

Can anybody clarify the difference between 'preliminary expenses' and 'pre-operative expenses'. WHAT IS THE ACCOUNTING TREATMENT FOR PRE-OPERATIVE EXPENSES?. Preliminary expenses (share issue expenses etc. ) are amortised over 5 years. What is the treatment for pre-operative expenses?
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Postby srinivasaraghavan » Thu Sep 06, 2007 2:13 pm

While preliminary expeses essentially associate with activities involved in the formation of the company, pre-operative expenses are those which are connected with actions that are required for start up of operations. Pre-operative expendiure can therefore be capitalised by apportionment/allocation to assets which are the subject matter of operation. Preliminary expenditure are written off as revenue and set off when the company generates profits. For more details please look into AS-26.

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Postby parikshitmehendale » Sat Sep 15, 2007 11:18 pm

Thank you very much sir...

But should the pre-operative expns be amortised over a period of 3-5 years by debiting to P&L a/c just the way preliminary expns are generally done?
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Postby banerjee.sambhu@rediffmai » Thu Sep 27, 2007 9:38 pm

Mr Parikshitmehendale,


You can debit the pre-operative expns in R & D A/C unless the commercial production starts.

Thanks,
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Postby raman018 » Wed Oct 31, 2007 9:48 pm

As Mr. Srinivasaraghavan has pointed out the pre-operative expenses are to be capitalized with the assets, meaning that the cost of the assets will increase, hence there is no question of amortization but only depreciation would arise.

Pre-oprative exp is expenses during construction and hence relate to bringing the assets to operating condition. I am not sure if this can be debited to R & D expenses. Primarily pre-operative expenses would relate to payment of salary, wages (indirect), travel expenses, communication expenses, consultancy charges and normal oprating expenses. Hence the question of R & D Expense would have to be decided based on the nature of expenses.

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