Aditya Maheshwari (CA in Practice) (35867 Points)
22 August 2009
There is a company where the name was approved by the ROC and the director of the company incurred expenses in the approved name but before the date of incorporation of the company. What will be the treatment of the said expenses? Show we debit in the profit & loss a/c or be capitalised as goodwill or some other place.
Vinod Kashyap
(XBRL Training)
(451 Points)
Replied 23 August 2009
hi!
The accounting treatment of Pre-incorporation Expenses will depend upon the nature of expenditure. If its Preliminary Expenses i.e. expenditure incurred on incorporation of Company you can write off the same in Profit & Loss Account. The accounting treatment of any expenditoure other than Preliminary Expenses will depend upon the nature of expenditure. If you can specify the nature of expenditure than I can suggest you something.
Thanks
Vinod
Hi Aditya
As per AS 26 on Intangible assets, all Preliminary expenses should be written off fully in the year in which it is incurred.
This is because, a Intangible asset should meet the recognition criteria specified in AS 26. Prelim Exp doesnt meet the criteria that "the entity should be able to control the asset".
So it should be fully written off.
Prasad R
(CA Final)
(2128 Points)
Replied 23 August 2009
| Originally posted by :Priyadarshini | ||
| " |
Hi Aditya I agree with Priyadrshini all preliminary exepses to be w'off in the same year in which they are incurred, |
"
|
Aditya Maheshwari
(CA in Practice)
(35867 Points)
Replied 24 August 2009
Thanks for all your help. But still more clarification required. So i am furnishing further details of the expenses.
The date of approval of name is 01st September, 2008, expenses incurred by director of the company on 3rd September, 2008 in respect of travelling and fees for participation in an conference and also bill date is 03rd September for conference and 05th for traveling. Amount approx. 3 lakhs. Company incorporation date 10th September 2008. This is over and above the incorporation expenses paid to MCA.
Also what would be the status of the expenses in Income Tax Act.
Vinod Kashyap
(XBRL Training)
(451 Points)
Replied 26 August 2009
You can debit Travelling Expenses and Confrence Fees of Rs. 3 Lakhs to pre-incorporation Expenses and then write it off in the First year itself. It will be allowed as expenditure u/s 37 (1) of the Income Tax Act.
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