Roat Company, a major winery, started construction of a new facility in Mindanao.

The
entity incurred the following costs in conjunction with the start-up activities of the new
facility:
Production equipment 8,150,000
Travel costs of salaried employees 400,000
License fees 140,000
Training of local employees for production and maintenance operations 1,200,000
Advertising costs 850,000
What portion of the organization costs should be expensed?
A. 1,390,000 C. 2,450,000
B. 1,600,000 D. 2,590,000

Travel costs of salaried employees 400,000

Training of local employees for production and maintenance operations 1,200,000
Total start-up costs to be expensed 1,600,000
The production equipment definitely should be capitalized. The license fees and
advertising costs are also charged to expense but not embraced in the definition of
start-up costs. The license fees and advertising costs are operating costs and not pre-
opening or pre-operating costs. The organization costs contemplated in this problem
squarely pertain to start-up costs.
Under PAS 38, start-up costs are outright expenses. Start-up costs may consist of
establishment costs such as legal and secretarial costs incurred in establishing a legal
entity or preopening costs – expenditures to open a new facility or pre-operating costs –
expenditures for commencing or launching a new project.