hi ...........
what should be the treatment of administration expenses for the period between incorporation and date of commencement of business?
7 Replies
Faiz Ahmed
( Article Trainee)
(1731 Points)
Replied 06 September 2010
It is treated as revenue expense and charged to P&L
Anil Kumar Meena
(Assistant Manager)
(475 Points)
Replied 06 September 2010
Hi,
As Per my knowlodge,
As the business not yet start ,.. the company have to make the satement of expense not P&l Account.And book this expenses in that account only.
if the company making the P&l Accounts it showz the company in working condition which mislead the user's of financial statment.
Thanks,
Anil
CA Sandeep Kumar
(Audit Assistant)
(804 Points)
Replied 07 September 2010
If you carefully look at the provisions contained in comapnies act, the certificate to commence business is to be obtained only to commence business as contained in the objects clause. But our accounting treatment is only upto date of incorporation, i.e COI issued by ROC, in this case all expense and income is not revenue in nature as the company is not formed at all. So how would u treat general admin exp of company till obtaining certificate to commence business after incorporation? The company is prohibited to commence business if certificate to commence business is not obtained, but it is not prohibited to incur exp related daily functioning.
Therefore such exp can be treated as normal revenue exp.
RAMESH POLINENI
(ca)
(352 Points)
Replied 07 September 2010
we will treat any expenses incurred by the company from the date of incorporation to the date of commencement of business as a preliminary expenses then we should shown it in the assets side of the balence sheet under the head miscellanious expenses not written off. There after after the business is started we should transfer some amount each year to the profit and loss account
Faiz Ahmed
( Article Trainee)
(1731 Points)
Replied 07 September 2010
I agree with the explanation given by Sandeep.
@ Ramesh,
Preliminary exp are those exp which are incurred before the incorporation of a co. Here admin. exp is incurred after incorporation. So its not to be capitalised. Read Sandeep reply for better explanation.
@ Anil,
The whole sole purpose is to start the business in form of Company. When incorporation is done , the objective to run the entity as a Company is achieved. Commencement of Business certificate is a mere legal evidence to the outside world. The operations carried out before that are very well taken into account. In your answer, can you stop the running business acquired for the period between incorporation date & commencement of business date??? You can't wait to get comm. cerificate. Hence, there is no significant difference between incorporation date and commencement date for accounting purpose.
Hope now its clear.
Janbaz Shaikh
(Praticing )
(40 Points)
Replied 23 December 2010
difference between date of commencement and date of incorporation
CA Sandeep Kumar
(Audit Assistant)
(804 Points)
Replied 23 December 2010
date of incorporation- date on which compny is incorporated and capable of excersing all functions of incorporated company (also read section 34 and 35 of companies act)
date of commencement- public ltd companies are not supposed to commence business without obtaining certificate of commencement of business
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