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accounts doubts

rahul KKK (ARTICLED ASSIS) (93 Points)

27 February 2009

Dear friends, In profit prior to incorporation ,preliminary expns would have incurred b4 the existence of the company........then why should not be charged to pre incorpn period? should audit fees be charged on sales ratio or time ratio?which is preferable?plzzzzzzzz guide yaa....

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triumph-CMA (Chartered Accountant) (503 Points)
Replied 27 February 2009

preliminary expenses are incurred for the incorporation of the company hence it must be charged to post incorporation period, where as audit fee do not correspond with sales volume it must be charged on time basis. There is a view that audit becomes compulsary only after incorporation of company so it must be charged only to post incorporation period but audit fees is paid for the audit of the accountsof the entire period hence the audit fee must be charged to both pre and post incorporation period on time basis.