Dear Sir,
Please let me know,
What will be the effect of Prelimanary Expenses incurred by the company in its Cash flow statement during finacial period? In which category of cash flow, it should be shown?
23 Replies
Kalpesh Chauhan,
(Tax Assistant (Accounting Technician CA FINAL CS PROF. PROG. B.Com))
(8311 Points)
Replied 04 June 2010
I think it should be shown under Cash Flows from Financing Activities as cash out flow.
CA Shantanu Goyal
(Practicing CA)
(122 Points)
Replied 04 June 2010
hi palak
in general when company is incorporated the payment of preliminary expenses in made through issue of shares to promoter.
but if the company has paid cash in relation to preliminary expenses to promoters then in my opinion it should be classified in 'Operating Activities'
reason being its not an investment, further as per AS-3 financing activities are those which results in change in the size and composition of owner's fund and as such no change in owners fund come into existence.
Operating activities are those which are related to principal revenue generating activity of an entity and OTHER ACTIVITIES THAT ARE NOT INVESTING OR FINANCING
Hope it will be useful for you
Madhusudan Kabra
(knowledge seeker)
(1779 Points)
Replied 04 June 2010
In my opinion preliminary expencess are not operating expencess but as per opinion given by MR. Shantnu goyal that OTHER ACTIVITIES THAT ARE NOT INVESTING OR FINANCING are operating activity .
it should be shown in cash flow from operating activity
Regards
Madhusudan Kabra
aman kumar
(CA final intern)
(47 Points)
Replied 04 June 2010
i think it will be shown as an outflow under head " financing activities".... as it is no way, related with operating flows as per prevelent theory i.e., operating outflows can be linked, on one to one basis with operating inflows or revenues. Since there is no such matching lies in case preliminary exp. they ought to be shown in "financing activities".
But i do agree with the fact that such expanses dont contribute towards the capital. I think we should come with an unanimous answer to this question.
AMRITA KAUR
(Article Assistant)
(41 Points)
Replied 04 June 2010
IN CASH FLOW STATEMENT PRELIMINARY EXPENSES ARE ADDED BACK TO NET PROFIT AND IT IS SHOWN UNDER CASH FROM OPERATING ACTIVITIES
Abhimanyu Bind
(CA Final Student & Audit Assitant)
(2051 Points)
Replied 04 June 2010
Agree with Aman, it should be shown under the head of Financing Activities.
Jibin Thomas
(CA Final,B COM(H))
(109 Points)
Replied 04 June 2010
preliminary expenses are non operating expenses......as it is written off in p&l ,it should be added with net profit in operating activities because we have to show the actual flow cash flown from operating activities.................
M. N. JHA
(CA)
(8316 Points)
Replied 05 June 2010
Prelimanary expenses are incured on formation and issue of securities and we capitalised this by showing it in assets side, so it should be shown under the heading of FINANCING ACTIVITIES.
CA SUMEET NIKHERA
(faculty)
(28 Points)
Replied 05 June 2010
it should be shown under oprating activity
* Krishna *
(CA Student)
(6149 Points)
Replied 05 June 2010
It is added to Net Profit for calculating Cash from Operating Activities in Indirect Method.
CA Deepak Joshi
(TaxTalk)
(178 Points)
Replied 05 June 2010
Look... i hv the following concept in my mind....
PRELIMINARY EXPENSES
To my mind it comes that preliminary expenses are borne at the time of capital expansion and reduction, promoting a new company etc.
On the face of it , this seems to be helping in financing the co's need for funds.
But as in nature prelim exp are only incidental exp which are just related to the main funding exercise of raising or reducing capital.
Thus , nowhere in this world you can call it a financing activity.
Hence in my view and concept it should be shown in operating activities.
Shruti Chawla
(CS)
(258 Points)
Replied 05 June 2010
i think it should be shown under financing activities....
Prateek
(B.Com(H) PGDBA CA Final)
(436 Points)
Replied 05 June 2010
2001 2002
Preliminary Exp 115000 90000
it means Prem Exp Written Off....25000 Added back in NP Operating activities
Prateek
(B.Com(H) PGDBA CA Final)
(436 Points)
Replied 05 June 2010
it will come in Investing activities if .....Example Developement Exp shown in asset side of B/S
like this 2001 2002
90000 115000
this shows additional expenditure(Outflow) incurred of Rs 25000, it should be reduced in Investing Activities
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