Treatment for expenditure for raising capital funds
This query is : Resolved
07 February 2008
The Company is currently raising capital from Institutional Investors and has incurred, or is likely to incur various expenses such as,
- Payment made to an intermediary as commission
- Expenses incurred towards increasing authorized capital
- Stamp duty for agreements and share certificates
- Consultancy fees paid for carrying out due diligences on behalf of the investors
- Legal fees for drafting documents
We need to know the accounting treatment for the above expenses.
1. Should these expenses be charged off in the current year itself.
2. Are we allowed to carry them over as Differed Revenue Exp and charge off over say, 5 or 10 years?
3. Is the entire spend allowed as deduction in a single financial year, or even for Tax, one is only allowed a partial deduction? We would also like to know whether our treatment in Books of Accounts impact our tax claim?
- Payment made to an intermediary as commission
- Expenses incurred towards increasing authorized capital
- Stamp duty for agreements and share certificates
- Consultancy fees paid for carrying out due diligences on behalf of the investors
- Legal fees for drafting documents
We need to know the accounting treatment for the above expenses.
1. Should these expenses be charged off in the current year itself.
2. Are we allowed to carry them over as Differed Revenue Exp and charge off over say, 5 or 10 years?
3. Is the entire spend allowed as deduction in a single financial year, or even for Tax, one is only allowed a partial deduction? We would also like to know whether our treatment in Books of Accounts impact our tax claim?
07 February 2008
EXPENSES ON INCREASE OF AUTHOISED CAPITAL IS A CAPITAL EXP.( AS PER DECIDED CASE LAW QUOTED IN AN ANSWER TO A QUERY IN OUR FORUM EARLER).
AS REGARDS THE REST OF EXP. IT CAN BE TREATED AS DEFERRED REVENUE BEING CAPITAL RAISING RELATED AND WHOSE BENEFIT HELPS THE COMPANY IN A LONG WAY. THERE IS THEN NO JUSTIFICATION TO WRITE THEM OFF AS REVENUE IN A SINGLE YEAR.
R.V.RAO
AS REGARDS THE REST OF EXP. IT CAN BE TREATED AS DEFERRED REVENUE BEING CAPITAL RAISING RELATED AND WHOSE BENEFIT HELPS THE COMPANY IN A LONG WAY. THERE IS THEN NO JUSTIFICATION TO WRITE THEM OFF AS REVENUE IN A SINGLE YEAR.
R.V.RAO
07 February 2008
These expenditure are in the nature of preliminary expenses and accounted as such and will be written off against revenue in books. As far as tax assessment is concerned section 35D of the Incometax Act will come into play.
29 February 2008
The concept of DRE carry over is not there if the item does not represent any tangible asset.
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