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IFRS Accounting Treatment of Initial set up costs – Investment fund

4 July 2010 4,118 views 5 Comments

Dear Experts,

I shall be grateful if anyone can advise me on the following:

An Investment Fund (thereafter the “fund”) was established in April 2009 with the aim of investing, on behalf of the subscribers, on the local stock exchange.

The fund incurred the following expenses, classified as “Initial set up fees” amounting to US 5600, at its creation in the statement of financial position (Balance sheet);

(i)                  Payment to a consultant for legal advise amounting to US 1700

(ii)                License fees amounting to US 3400

(iii)               Other set up fees amounting to US 500

In the prospectus of the fund, it is written that “Initial set up fees are capitalized and amortized over of period of 5 years”. My questions are as

1-     Is it correct to amortize this cost over 5 years or the amount of US 5600 should be expensed?

2-     Which IFRS’s is relevant for this?

A clear and precise answer on this issue would be highly appreciated.

Thank in advance.

Regards,

Yashin

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5 Comments »

  • ifrslist
    ifrslist said:

    [New Post] IFRS Accounting Treatment of Initial set up costs – Investment fund – http://www.ifrslist.com/2010/07/ifrs-acc...
    via Twitoaster

    # 4 July 2010 at 7:36 pm
  • IFRS List.com: IFRS Accounting Treatment of Initial set up costs … — Accounting Blog said:

    [...] admin wrote an interesting post today. Here’s a quick excerptDear Experts, I shall be grateful if anyone can advise me on the following: An Investment Fund (thereafter the “fund”) was established in April 2009. [...]

    # 4 July 2010 at 9:05 pm
  • ifrsexpert said:

    The prospectus is wrong. Initial set-up costs may not be capitalised because they do not meet the definition of an asset as set out in the Framework : ” a resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity.”
    Set-up costs are sunk – they cannot be thought of as a resource, and will certainly not generate future economic benefits. So they must be written off as incurred.

    # 4 July 2010 at 10:29 pm
  • riyer0018 said:

    Relevant IFRS is IAS 38 and the IFRS Framework.

    Such cost cannot be capitalised.

    # 16 August 2010 at 8:16 am
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    # 4 November 2010 at 9:07 pm

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