Profit prior to incorporation

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Querist : Anonymous

Querist : Anonymous (Querist)

09 October 2013 what do u mean by preliminary expenses ?

Ajay Mishra

Ajay Mishra (Expert)
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09 October 2013 Before incorporation and commencement of business, company and the promoters of the company may incurred so many types of expenses like statuary fees and company logo designing, in some cases rent for the office premises during the time of incorporation not after incorporation etc... These are all comes under preliminary expenses .in simple words preliminary expenses are the expenses that spent by the promoters before the incorporation of company.
Examples:
Expenses paid for CA for incorporation of company Expenses paid for name approve of the company Expenses for printing of statutory documents like MOA, AOA
Stamp duties paid Any other expenses paid to take the company into existence Expenses for raising initial share capital

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Ajay Mishra

Ajay Mishra (Expert)
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09 October 2013 For more details, you can go to the following link:

http://accountantsquare.blogspot.in/2012/05/what-are-preliminary-expenses-and.html

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CA Pallav Singhania

CA Pallav Singhania (Expert)
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09 October 2013 Agree with Expert,

Before incorporation and commencement of business, company and the promoters of the company may incurred so many types of expenses like statuary fees and company logo designing, in some cases rent for the office premises during the time of incorporation not after incorporation etc... These are all comes under preliminary expenses .
Examples:

Expenses paid for CA for incorporation of company.

Expenses paid for name approve of the company.

Expenses for printing of statutory documents like MOA, AOA,Stamp duties paid.

Any other expenses paid to take the company into existence.

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CA Pallav Singhania

CA Pallav Singhania (Expert)
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09 October 2013 Accounting for preliminary Expenses:

The benefit of the preliminary expenses is long-term so it is treated as intangible asset and shown in Balance sheet under Missilinous assets.
These expenses will be written off in 5 equal year installment in profit and loss A/c. you can also transfer whole amount in single year but for income tax purpose 1/5 of the amount will consider.

Accounting Entries:

1. Preliminary Expense - Dr (Current Asset)
To Cash\Bank

2. Preliminary Expenses Written Off - Dr (Indirect Expenses)
To Preliminary Expenses

3. Profit & Loss A\c. - Dr
To Preliminary Expenses