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Pre-operating expense

 
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Pre-operating expense
kamranACA
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#12
01-29-2009, 07:59 PM
Dear,

During last year, this issue was discussed by me on some other thread the link of which I don't remember as for now.

Please be informed that Corporate Entities don't have to follow ITO 2001 for the preparation of financials. The financial reporting frame-work has to be followed, and in Pakistan this framework is the Companies' Ordinance, 1984, directives issued by SECP, IFRS, local standards fro MSEs and SSEs, legal and non-legal GAAPS etc. ITO 2001 is not included in financial reporting framework, one must understand.

Therefore, while drafting financial statements, adopting accounting policies, making accoutning estimates and considering all recognition and measurement criterias, the corporate entities have to follow the applicable financial reporting framework. To that extent Income tax law has no bearing. It is only relevant while calculating tax liabilities. This is the thing to be understood.

Now, what you have pointed out is a valid observation at its own. However, the presence of such provisio in income tax law depicts the indifferent behaviour we possess at large. So many laws of Pakistan don't match with each other. This is a fact. Some laws even have conflicting issues within their own text. Income Tax Ordinance should have been amended after the relevant amendment of the Companies' Ordinance 1984. If such amendment has not so far been made, it does not provide any room for deviating from the financial reporting framework applicable in Pakistan.

Notwithstanding the above, ITO 2001 no where makes it compuslion to defer such costs and amortise over 5 years. It only provides how such balance would be amortised if it exists in the balance sheet. if no body will recognise such asset, there would be no question of amortisation. I refer you to study section 25 (4) of ITO 2001 for the sake of clarity. It states

"No deduction shall be allowed under this section where a deduction has been allowed under another section of this Ordinance for the entire amount of the pre-commencement expenditure in the tax year in which it is incurred."

Therefore, it is apparent that deferring of such costs is not even warranted as a compulsion by income tax law.

I think it would be enough for you to understand the issue. However, if you are dissatisfied with the answer, please let me know.


Regards,



KAMRAN.
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Messages In This Thread
Pre-operating expense - by outfield73 - 03-06-2007, 12:45 PM
[No subject] - by kamranACA - 03-06-2007, 05:57 PM
[No subject] - by kamranACA - 03-06-2007, 06:01 PM
[No subject] - by kamranACA - 03-06-2007, 06:07 PM
[No subject] - by msc286 - 03-13-2007, 03:30 PM
[No subject] - by kamranACA - 03-17-2007, 05:08 PM
[No subject] - by msc286 - 08-29-2007, 07:36 PM
[No subject] - by kamranACA - 08-30-2007, 04:36 PM
[No subject] - by kamranACA - 08-31-2007, 04:38 PM
[No subject] - by msc286 - 09-07-2007, 06:25 PM
[No subject] - by harisahmed - 01-29-2009, 05:31 PM
[No subject] - by kamranACA - 01-29-2009, 07:59 PM
[No subject] - by mahek - 02-22-2009, 07:27 PM
[No subject] - by Star - 02-23-2009, 03:46 PM
[No subject] - by kamranACA - 02-23-2009, 05:50 PM
[No subject] - by Ali78 - 10-06-2010, 04:11 PM
[No subject] - by kamranACA - 10-07-2010, 12:24 AM

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