Morning All,

Our company incurs a lot of expenses in terms of projects work like traveling. Substance, entertainment allowances etc

We also do incur expense interims of the preliminary expenses like site visits, negotiating meetings.

Are these expenses to be expensed or capitalized as we seems to have a different view of this from IAS 16.

Secondly before we begin any project we are supposed to remit 0.1% of the project cost as a government requirements to Environmental authority . Should such expenses be capitalized as per IAS 16 para 11

Regards

David

Stelian

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Thanks for your mail Stelain,

tyle=”font-size:10pt;font-family:Arial;color:navy;”>However the traveling cost, entertainment and subsistence allowances incurred are related to  a specific projects like we will have our engineering staff frequently traveling to review projects status and they usually incur such expenses. More so when they budget they put such expenses as part of project budget.

Secondly the 0.1 % payment we make is for an environmental impact assessment of the said project which is a statutory remittance as it has been gazette by our government. If this is not done then they can bring down the project.

Kindly elaborate further based on the above illustration,

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Below you will find quotes from IAS 16:

“The cost of an item of property, plant and equipment shall be recognised as an asset if, and only if:
- it is probable that future economic benefits associated with the item will flow to the entity; and
- the cost of the item can be measured reliably.”

I interpret this paragraph as follows:
- all costs prior to knowing with reasonable probability that the project is approved are expenses of the period. This includes costs for projects that are not approved. That’s the cost of doing business.
- all costs after the project has been approved are to be capitalized.
This relates to the 0.1%. My interpretation is that the 0.1% is exactly as described below. As you mentioned in your e-mail. The 0.1% does not help with help with the project but without it there would be no project.

“Items of property, plant and equipment may be acquired for safety or environmental reasons.  The acquisition of such property, plant and equipment, although not directly increasing the future economic benefits of any particular existing item of property, plant and equipment, may be necessary for an entity to obtain the future economic benefits from its other assets.  Such items of property, plant and equipment qualify for recognition as assets because they enable an entity to derive future economic benefits from related assets in excess of what could be derived had those items not been acquired.”

Hello every body.

We have in my company all expenses related to project should be capitalized regard less of the volume of the expenses and kind of expenses.

Regards.

Amir