PRELIMINARY EXPENSES
INTRODUCE
There are some expenditures that
incurred before incorporation and commencement of business, company and the
promoters of the company like Statuary Fees and Company logo designing, Survey
& Development fees, Project & Planning fees etc . These are all comes under preliminary expenses.
Simply says Preliminary Expenses are
the expenses that only be spent by the proprietor/owner before the
incorporation of company/firm. Expenses made after incorporation of the
company/firm will not be considered as preliminary expenses.
Examples of preliminary expenses:-
1. Expenses made towards Feasibility Report of company
2. Expenses made towards Preparation of Project
Report of company
3. Expenses made towards conducting market and
any other survey of company
4. Legal charges
5. Expenses made/incurred on the printing of
Memorandum and Articles of Association;
6.
Registering Fees for the Company under
Companies Act, 1956;
7.
Issuance of Public subscription of shares and
debentures of the company, being underwriting commission, brokerage and charges
of drafting, for typing, printing and advertisement of the prospectus.
8. Expenses made towards Statutory Matters like
Stamp Duty
9.
Expenses made towards Land Development, survey,
project report etc.
10. Other
related expenses that made to take business into existence.
Accounting treatment of preliminary
expenses: - The benefit of Preliminary Expenses provides
long term benefit accordingly it is treated as intangible assets and shown in
balance sheet under the head of Miscellaneous Assets:-
1. Preliminary Expenses
are made/incurred /paid;
Preliminary
expense (Miscellaneous Assets-Current Assets) A/c………….Dr.
Cash/Bank A/c……………………………………………………………………..…………….Cr.
2. Part of Preliminary
Expenses are considered as Indirect Expense:-
Preliminary
Expenses written off A/c………Dr.
Preliminary
expenses A/c…………………..……Cr.
3. Deduction of preliminary expenses:-
Profit & Loss
A/c……………..…..Dr.
Preliminary
expenses A/c…….Cr.
Eligible Deduction of Preliminary Expenses
U/s 35D of I. Tax:- An Indian company or a person (other than company) resident in India
only
can claim deduction of Preliminary Expenses that shall not be exceeds 5% of
the “Project Cost” or “Capital Employed”.
The
Expenditures shall be divided in 5 equal installments for five successive previous years beginning
with the previous year in which business commences.
