Preliminary expenses

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

08 February 2012 In the private company, say ABC pvt ltd, promoters have incurred preliminary expenses i.e. pre-incorporation expenses, & the same expenses were approved in FIRST STATUTORY MEETING to be recognized in the books of accounts of the company, but company haven't paid till the completion of financial year.
so my question is how the company would show preliminary expenses in the books of accounts(which are payable to promoter), i mean what would be the journal entry in the books of accounts & how much should company write off in the current year as preliminary expenses................

Jatin Agrawal

Jatin Agrawal (Expert)
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08 February 2012 Prelim expense a/c Dr. 100
(Grouped in Misc Exp not written off Bals.)
To Promoter(sundry Cr.) A/c. 100

this expense is usually w/off over a period of 5 years...i.e. 20 each year.

Querist : Anonymous

Querist : Anonymous (Querist)

08 February 2012 sir this 5 years period for w/off is amended to 10 years in section 35d of income tax act, 1961 & in current year whether i can w/off 1/10th of the amount i.e. 10??????

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Jatin Agrawal

Jatin Agrawal (Expert)
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08 February 2012 from 31-03-1970 to 31-03-1998 it was ten years
thereafter it is over a period of 5 years...please refer the section as below
or directly access on

http://law.incometaxindia.gov.in/DIT/Income-tax-acts.aspx

Sec 35 - Amortisation of certain preliminary expenses.

35D. (1) Where an assessee, being an Indian company or a person (other than a company) who is resident in India, incurs, after the 31st day of March, 1970, any expenditure specified in sub-section (2),—

(i) before the commencement of his business, or

(ii) after the commencement of his business, in connection with the extension of his 95 [***] undertaking or in connection with his setting up a new 95 [***] unit,

the assessee shall, in accordance with and subject to the provisions of this section, be allowed a deduction of an amount equal to one-tenth of such expenditure for each of the ten successive previous years beginning with the previous year in which the business commences or, as the case may be, the previous year in which the extension of the 95 [***] undertaking is completed or the new 95 [***] unit commences production or operation :

96 [Provided that where an assessee incurs after the 31st day of March, 1998, any expenditure specified in sub-section (2), the provisions of this sub-section shall have effect as if for the words “an amount equal to one-tenth of such expenditure for each of the ten successive previous years”, the words “an amount equal to one-fifth of such expenditure for each of the five successive previous years” had been substituted.]

Querist : Anonymous

Querist : Anonymous (Querist)

08 February 2012 ohhhhh....thank you sir.....