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Should we capitalize the Meal, Hotel, Transportation expense incurred during WIP?


We have many ongoing projects, During Work in Progress, Our supervisor from head office visit the project site to ensure that work is going properly. Should we capitalize the expenses (Food, Hotel Room Rent, air ticket, Mobile cards, Taxi fare) incurred by him during the Visit.
If Yes then to which asset should we charge or make separate asset
If No then in which period should we expense out, the Period in which expense incurred or at the time of project capitalization?

Answer needed in context of IFRS.

Thanks

asked Sep 14 in General IFRS Discussion by imran

1 Answer

0 votes
Work in Progress normally comprised of Raw Materials, Labour and Manufacturing Overhead.  It's impracticable to allocate travel cost to multiple WIP directly.  I suggest that you come up with a cost allocation formula.  The allocation base can be for instance 1. time spend on each project, or  2. project labour hours.  Alternatively you can calculate a variable allocation cost & rate.  You should look at projects started and finished over the course of a year, look at the total supervisor's total travel cost for the same period.  IAS 2 - Inventories states that cost formula should be disclosed.  IAS 2 has an extensive discussion on cast starting at paragraph 10.  Cost formulas should be used consistently.  There is no specific pronouncement what those formulas should be.  IAS 2 does refer to direct purchase cost, conversion cost (manufacturing),  and other costs.  

IAS 11 Construction contracts - direct and indirect attributable cost comprised of construction and technical design costs, materials and labour.  see paragraph 17 of IAS 11 for more detail.  Travel cost is not specifically mentioned.  You have to determine whether these cost are actual construction cost. If not, they are not included and expensed

You will need to determine the materiality of your travel cost in relation to total manufacturing or construction cost.  If immaterial I suggest to expense directly.  


Read through the cost sections of IAS 2 and IAS 11.  I cannot determine from your question whether the cost are inventory or construction contracts
answered Oct 26 by Rene Rotermundt


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