Australia Prepayment

[Jono]

Hi interested to know how the below scenario should be recorded.

Every year we are required to test the fire and electrical systems in a building. The test occurs in June and the invoice is paid in June totaling $12K.

Would you recognize a prepaid expense, as this is an annual requirement, or would you recognize the full expense in the month the work occurs.

 

[BIG E]

What is stated on the bill for the billing period?

 

[Jono]

The invoice would typically describe the nature of the work "Annual Fire System Test".

My initial thoughts were its a labor based cost, and should be recognized 100% in the month the work occurs, but you could also argue its an expense that provides a benefit over the whole year in that your fire system works and is compliant.

 

[Lee Thomas]

Hi interested to know how the below scenario should be recorded.

Every year we are required to test the fire and electrical systems in a building. The test occurs in June and the invoice is paid in June totaling $12K.

Would you recognize a prepaid expense, as this is an annual requirement, or would you recognize the full expense in the month the work occurs.

If payment is made in advance I would prepay the expense and spread the cost over a 12 month period.