The Company was incorporated in Oct 2007.Could you please give your
expert opinion on the treatment of preliminary expenses (Revenue
generation is not yet started) e.g. rent, salary, traveling etc.
incurred during Oct 2007- Aug 2008. Please reply in reference to IFRS.
Revenue is expected in Sept 2008.
In my view, preliminary expenses can be accumulated and amortized when
revenue is started due to matching concept.
Preliminary expenses / startup costs, etc. cannot be deferred. They
have to be charged off to income statement in the year of actual
startup of operations.
Thanks & Regards
Whether to Deffer the preliminary expenses or not before the revenue
generation starts depends not only on the Industry in which you are
but also on the Total amount and nature of such expenses.
In normal course one can charge such expenses. As in your case from
Sept 08 revenue will start so for the Year 2008 there will be a
revenue stream avaialble to charge of this expenses. (spet to dec 08)
But if you are in industry where say one needs to pay Lic fee (Like
Telecom ,Minnin, Oil & Gas ,etc) such expenses needs to be deffered
and charged later on.
There are certain expenditures which are incurred during project
gestation,which do not directly increase the earnings capacity of the
asset but facilitate formation of capital asset….these expenses are
added to the capital cost….Incidental expenditure during
Financial accounts revolves around treatment of expenditure as Capital
or Revenue and if revenue whether the same need to be charged in the
same year or it can be carried forward and
such expenditure which are decided to be carried forward when put to
test should show that the same are attributable to revenue streams of
roll over period…
The Entire accounting standards cannot ignore this bare fact…WRT
recording of transactions.
This is covered in which IFRS.
Further, if these expenses are not charged immediately then the issue
of going concern arises due to wipe of share capital due to