TaxTMI 
TaxTMI 
Pre-operative expenses
15 Dec 2010 
4 Replies 
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Pre-operative expenses capitalisation: testing charges from trial runs are treated as capital costs rather than preliminary write offs.
The issue is whether EB testing charges from a production trial run are preliminary expenses eligible for write off under Section 35D or pre-operative expenses that must be capitalised. Responses distinguish preliminary expenses as fictitious, written off over five years, whereas pre operative expenses are capital in nature, to be added to the cost of fixed assets with depreciation claimed; characterization depends on the testing's nature and purpose. (AI Summary)
The issue is whether EB testing charges from a production trial run are preliminary expenses eligible for write off under Section 35D or pre-operative expenses that must be capitalised. Responses distinguish preliminary expenses as fictitious, written off over five years, whereas pre operative expenses are capital in nature, to be added to the cost of fixed assets with depreciation claimed; characterization depends on the testing's nature and purpose. (AI Summary)
Whether the company can account the EB charges spent on testing as pre-operative expenses and w.off in subsequent 5 years.