Pre-operating expenses under International Financial Reporting Standards (IFRS) for Small and Medium Enterprises (SMEs) are expenses incurred before the start of the main operations of a business. These expenses are capitalized and recognized as assets when the business is ready to start operating.
Examples of pre-operating expenses under IFRS for SMEs include:
- Feasibility studies: Costs incurred to determine the viability of a proposed business, such as market research, site selection, and product testing.
- Legal and regulatory compliance: Costs incurred to obtain licenses, permits, and approvals required to start the business.
- Start-up costs: Costs incurred to prepare the business for operations, such as employee recruitment, training, and office setup.
- Research and development costs: Costs incurred to develop new products or improve existing ones.
According to IFRS for SMEs, pre-operating expenses should only be capitalized if the following conditions are met:
- It is probable that the business will be successfully started and that the expenses will be recouped through future operations.
- The expenses are directly attributable to the start of the business.
- The expenses are directly related to the start of the business and would not have been incurred if the business had not been started.
If these conditions are not met, pre-operating expenses should be recognized as expenses in the period in which they are incurred.
Pre-operating expenses under IFRS for SMEs are expenses incurred before the start of the main operations of a business. These expenses are capitalized and recognized as assets when the business is ready to start operating, provided that certain conditions are met.