The managing director and the director (finance) of a chain of multiplex commercial complex, established under the name and style M/s Wave Multiplex Commercial Complex (WMCC), are having a difference of opinion regarding the treatment of the first year’s operating losses of the complex.

The managing director desires to write off (amortize) such losses over a period of three years, while the director (finance) does not agree to the M.D.’s viewpoint.

The managing director maintains that amortization is the industry’s practice and that such accounting treatment would be conservative and consistent with the accounting conventions applicable as per the prevailing practice in the industry.

You are required to evaluate the managing director’s opinion with regard to ‘conservatism’ and

‘consistency’ from the viewpoint of the Indian GAAP (generally accepted accounting principles).

Assignment What accounting treatment will you suggest. Justify your stand.