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pre incorporation expenses

puneet mittal (business) (32 Points)

21 October 2008

hi.

please anyone can help me in making entries realted to expenses done before start of business.

entries related to expenses related to contruction of building. for eg: cement purchased, steel purchased, any amount paid to contractor for construction.

pls give answer in regard to guidelines and also what is the general practice.

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4 Replies

Hitesh (CA) (459 Points)
Replied 21 October 2008

Hi,

Kindly clarify on what kind of expenses u want the clarification.

On pre-incorporation expenses or pre operative expenses

Pre-incorporation expenses are expenses that have been incurred before the company has commenced its bussiness.

Pre-operative expenses are expenses that the company incurs as it does in its routine course of business but as the company has not yet commenced its operations, the expenses are classified as pre-operative expenses and are capitalised / charged to revenue in the year of Operations.

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sumitkumarlal (efgydfg) (30 Points)
Replied 13 July 2011

Hi..

Kindly clarify that expense

curred before incorporation of Company like- office expense, staff salary Rent etc.& various capital expenditure. Is it allow under Company act & Income-tax act? please give me instruction how Can I treatred in the Books of account?

Thanks & Regards

Sumit Lal

Raj Kumar (Student) (102 Points)
Replied 13 July 2011

I

If the company has not yet incorporated then how would you pay the salaries, rent and office exp., these expenses are incurred after the incorporation.

BUT some expenses have to spent before incorporation of the company such that

1 Printing of MOA/AOA,

2 Printing of stationery in the name of the company

3 any legal fee payment

4 authorisation expenses.. and so on

these expenses are called ''Pre-incorporation Expenses''

If your comapny has incorporated but not started its operations/business, In between this, any expenses has been incurred then it is expenses called ''Pre-Operated Expenses''

II

Any expenses incurred for the payment of cement purchased, steel purchased, any expenses regarding construction then it will be firstly treated as ''Capital Work in Progrees'' and when construction completes then Capital WIP shall transferred to Building A/c