Capitalization of Visa Charges
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
In my opinion it should be capitalized and depreciated for three years
to meet fair presentation of financial reporting standard.
Please suggest appropriate treatment
I think you should put the cost in prepayments and write-off against
admin expenses during the 3 years.
Actual cost month 1
DR Admin Exp i.e Cost/3/12
CR Prepayment i.e Cost/3/12
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 ?
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
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
I would like to know in case somebody has other view.
correct entry is
Dr Prepayment A/c
Cr Bank A/c
HK preposition seems to work out
Dr. Prepaid account
Cr. Bank account
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