Treatment of Preliminary Expenses
This query is : Resolved
24 April 2011
1.Preliminary expenses of Rs.75,000 are incurred for incorporation of company in FY 2008-09 what entry need to be passed ?
2.Whether the whole of expenses to be charged to P/L or can only 1/5 is to be charged to P/L & remaining is to be shown in B/S?
2.Whether the whole of expenses to be charged to P/L or can only 1/5 is to be charged to P/L & remaining is to be shown in B/S?
24 April 2011
Preliminary Exp A/c Dr
(under Misc Exp. Assets)
To Bank....
When Write of 1/5th-----
Prelim Exp Written off A/c DR.
To Preliminary Exp A/c
1/5 is to be charged to P/L & remaining is to be shown in B/S
(under Misc Exp. Assets)
To Bank....
When Write of 1/5th-----
Prelim Exp Written off A/c DR.
To Preliminary Exp A/c
1/5 is to be charged to P/L & remaining is to be shown in B/S
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24 April 2011
As regards part 1 of your question Mr Sanjay Gupta is correct.
But as regards part 2 of your question my opinion is that it should be written off in one year only because as per Accounting Standard 26 Preliminary expenses do not meet the definition of assets and must be expensed with in the year of incurring.
But as regards part 2 of your question my opinion is that it should be written off in one year only because as per Accounting Standard 26 Preliminary expenses do not meet the definition of assets and must be expensed with in the year of incurring.
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24 April 2011
prel expenses to be written off in 5 years
1/5 in each year
1/5 in each year
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25 April 2011
I will again request Mr Tareq Imam to read AS 26 and let me know whether writing off Preliminery Expenses in 5 years is correct treatment as per this accounting standard. This was definitely correct before this AS but the Institute has also clarified that preliminery expenses should be written off in one go as per this accounting standard which is mandatory for all companies in India.
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25 January 2013
As per AS 26 Preliminiary exp. if fully written off in the Ist year of Company incorporation...
Criteria of 1/5th is in Income Tax Act not in A.standard.
and for the same deferred tax is req. to calculate..
Thank You
Best Regards
CA Gaurav Agarwal
9015449229
Criteria of 1/5th is in Income Tax Act not in A.standard.
and for the same deferred tax is req. to calculate..
Thank You
Best Regards
CA Gaurav Agarwal
9015449229
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31 January 2013
But As per income tax act we can claim 1/5 th deduction each year
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01 February 2013
You are correct that as per it 1/5 is allowed every year. But as per accounting standard you have to write off full amount in first year. Moreover in accounts you have to recognise deferred tax on this account.
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23 April 2013
what about if the debit balance of profit & loss in balance sheet ? should the concern wait to set off same against the profit in future ?
13 June 2015
As per section 35D of the Income Tax Act, Preliminary expense to write off 1/5 in every year
AS 26 suggests writing off intangible assets over a period of 10 years, though a different period is permissible if it is justified in the opinion of the management. It is a common practice to write off these preliminary expenses in a period of five years, though there is no legal provision to this effect. A company can as well write off its preliminary expenses in the same year as it incurs.
My opinion is to write-off preliminary expense in the same year.
AS 26 suggests writing off intangible assets over a period of 10 years, though a different period is permissible if it is justified in the opinion of the management. It is a common practice to write off these preliminary expenses in a period of five years, though there is no legal provision to this effect. A company can as well write off its preliminary expenses in the same year as it incurs.
My opinion is to write-off preliminary expense in the same year.
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