MyCIMA

Expense Recognition in 2011

Posted: Friday 02 December 2011 by Iain Cottingham
Replies : 2
Keywords: IFRS guidance

hi - I'm after help / advice.

 Our financial year end is December, we have budget this year to perform an office upgrade refurb (it will be opex rather than capex due to non permanent nature of the work).  The PO will be placed with a 3rd party to perform the work, however it will not be completed until 2012.

What clause do i need to insert into the 3rd party contract to ensure that the cost is recognised as an expense in our 2011 accounts? i.e. our external auditors recognise the expense in 2011 rather than deferring it into 2012?

 Many thanks.

 

Disclosed Accounting Policy of the Company

Posted by Aqeel Zeeshan on Sunday 04 December 2011 14:33

In my opinion, it depends on the stated accounting policy of your company regarding classification of refurbishing expense as capital expenditure or operating expense. It has less to do with the performance contract that you sign with the third party. 

In terms of matching principle, you have to recognize expense in the year in which benefits are likely to accrue for such an expense. So, in the instant case you may not be able to calssify the entire refurbishing expense as operating expense for the year 2011. 

Reference from Framework

Posted by Aqeel Zeeshan on Sunday 04 December 2011 14:31

Just checked the reference for authentication of my above opinion. You can refer to Paragraph 94 through 98 of the IASB's Framework for the Preparation and Presentation of Financial Statements.

I hope it helps.

Regards,

 

Aqeel.