A) In a limited company there are wide number of expenses, however all expenses are not allowed under income tax. Only genuine expenses are allowed, that means the expenses which are incurred wholly for running the business of the company. On determining any expenditure, one has to check if the expense was incurred wholly for running the business, if the answer is yes then that expense is a business expense. However it may not be an allowable expense. In this case the company has to book its expense in asset form, so that it does not impacts its taxability.For recording an expense under the asset head, one have to check if that expenditure gives future economic benefit to the company then it can be booked as an asset.
Any company which have an aggressive behavior that involves selecting accounting policies that include rules that lead to lower costs in the income statements (cannot influence the revenue because they have strict rules of recognition: the registration of revenue can neither be brought forward or deferred).
The two treatment can be-
1)Any item which have an input value less than the limit established by legislation in the field (1,800
u.m.) will be recognized under current assets and amortized over a longer period of time.
2)Establishment of large economic life of tangible and therefore their depreciation over a period as
long, returning a reduced depreciation expense in the income statement.
B) According to AASB 108, in the absence of an Australian Accounting Standard that specifically applies to a transaction, other event or condition, management shall use its judgment in developing and applying an accounting policy that results in information that is:
(a) Relevant to the economic decision-making needs of users
(b) Reliable, in that the financial statements
(c) Represent faithfully the financial position, financial performance and cash flows of the entity
(d) Reflect the economic substance of transactions, other events and conditions, and not merely the legal form
(e) Are neutral
(f) Are prudent
(g) Are complete in all material respects.
For such judgment management should consider the following in descending order:
(a) The requirements in Australian Accounting Standards dealing with similar and related issues
(b) The definitions, recognition criteria and measurement concepts for assets, liabilities, income and expenses in the Framework.
Further management may consider the most recent pronouncements of other standard setting bodies that use a similar conceptual framework to develop accounting standards as long as they do not conflict with AASB 108.
Hence in the given case the accountant should first consider that expense incurred is complete, prudent, and neutral and expected to give future economic benefit to the company. Thereafter he should check with AASB 108 requirements and definition and then record the expense as asset so as to not impact current year profit.