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Capitalization of Visa Charges

15 December 2008 2,907 views No Comment

Dear All
Greeting

In UAE work visa would be for 3 years and cost would be paid by the
employer and in my company it is practice to debit as administration
expense. Employees must has to complete 3 years and if he/she leave
the job prior to three years he has to pay back the full visa cost to
company.

In my opinion it should be capitalized and depreciated for three years
to meet fair presentation of financial reporting standard.

Please suggest appropriate treatment

Regards,

Ahmad



Dear Ahmad,

I think you should put the cost in prepayments and write-off against
admin expenses during the 3 years.

Visa payment

DR BANK
CR PREPAYMENTS

Actual cost month 1

DR Admin Exp i.e Cost/3/12
CR Prepayment i.e Cost/3/12

Best regards,

Dany



Hi Dany,

I think you have inadvertantly committed a mistake in mentioning debit
& credits in payment !
Prepayments should be debited & Bank should be credited…isn’t it ?

Rgds

Suresh



Suresh,

Correct !!!!

Best regards,

Dany Veerasawmy



Bilal,
You can amortise the Visa expense (since the benefit of such cost is
available for more then 1 year) and cannot capitalise it (since there
is no corresponding asset and therefore depreciation is permitted on
such amount).
Every year, for 3 years, equal amount of visa expenses should be
charged (debited)to P&L a/c.
In case the employee leaves in Year 3 and total visa cost is recovered
from him, then the balance unamortised amount alongwith the amount
recovered from the employee should be credited to the P&L a/c.
I believe the above view to be appropriate since there is a provision
of recovering visa cost from the employee in case of early termination
of employment.
I would like to know in case somebody has other view.
Regards
Asif



Dear Dany

correct entry is

Dr Prepayment A/c
Cr Bank A/c



HK preposition seems to work out
Dr. Prepaid account
Cr. Bank account
AND
charge the proportionate amount monthly to P&L account under
Administration exps., balance amount would remain appear in Prepaid
Account thereby representing asset means capitalization.Regards

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