17 July 2008
Dear Sir, A company was incorporated in 2006, but business has started i.e first Sales made by the Company is in june 2008.Now the company has not prepared any P & l account for the last two years and have filed NIL IT Return and have debited the expense to pre-operative exp account. Now the Company prepares the P & L anccount and debit all expenses of the last two years including the current year exp. in the P & l Account.Is the treatment correct as the Company wants to rectify the entries which it has wrongly debited to Pre-operative exp Account. a) Will the expenses which were debited to Pre-operative exp account be allowable as per IT act, as they relate to period other than the current financial year ? b) As per It Act will the expenses be allowed if the operation of the Company has only started in June 2008.
17 July 2008
Preoperative expenditure have to be transferred (apportioned)to Capital assets. The question of allowability of expenditure can be only through depreciation.
CAclubindia
