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Sir,
Drita’s business manufactures a product under license. In 12months’ time, the license expires and Drita will have to pay 50000 for it to be renewed.
May I knw the 50000 will be capitalised or expense ?Based on how you describe it, it appears a production expense and will be accounted for like any other expense on an accruals basis. So if the period of the licence is the same as the financial year (say to 31 December):
If the renewal is paid for before the year end there would be a 50000 prepayment
If the renewal is paid for after the year end – no account would be taken of itIf the period of the licence does not coincide with the year end (say the financial year is to 31 December 2018 but the licence will be renewed on 1 October 2018) – if the 50,000 was paid before 31 December 2018 there would be a 9/12 months prepayment to carry forward 37,500 of expense to the next financial year.
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