Hello, I have a client who wishes to defer consultancy costs (paid during the year) as they state that Revenue will be generated once that specific arm of the business is up and running (in the next year or so). I have not seen a 'deferred expenditure' line in a set of accounts before - can this be done?
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If they are not specific costs say relating to a specific long term contract, and they are not fixed assets or similar ,I really cannot see how they can be carried forward in any guise upon the balance sheet.
What future benefit is to be enjoyed by the company? If they were say rates on a shop unit relating to the period before it opened its doors would you consider that deferred expenditure (prepayments)
Edit:
Any scope to treat as costs re development of some form of intellectual property, try reading FRS
https://www.frc.org.uk/Our-Work/Publications/Accounting-and-Reporting-Po...
Hello,
Thank you for your response. The client argues that the consultancy costs incurred to-date are in relation to setting up the business in Europe (which is not yet income generating). The consultants have been liaising with contacts in Germany and agreeing sales contracts with German companies in order to generate income in the near future.
Had sales contracts been agreed at the b/s date? if not, how certain is the 'flow of future economic benefits' arising from this expenditure? if those benefits are not 'probable' at the b/s date then you don't have an asset...
Deferring speculative expenditure to make the profit look better is nearly as bad as accelerating unearned income. which is why we have financial reporting standards. Read them...
Yes, just hold the costs in the balance sheet as a prepayment and release in the period the expenditure relates to.