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Treatment of incorporation expenses

VARUN RANJAN (Student) (231 Points)

25 July 2020

can company incorporation expenses paid by the director from his savings account be added to the paid up capital of the company?

or should it be considered as a loan to the company?

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3 Replies

yasaswi gomes (My grammar is 💯 good I) (7290 Points)
Replied 25 July 2020

It need not necessarily be a loan, it could be treated as preliminary expenses as well, not unless there is a prescribed accounting treatment in Company laws.

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VARUN RANJAN (Student) (231 Points)
Replied 25 July 2020

What should be the if the payment was made by the Directors Personal A/c.
how will the Directors show the payment made in his books of accounts?

yasaswi gomes (My grammar is 💯 good I) (7290 Points)
Replied 25 July 2020

The amounts recoverable is very low. It is 5% on capital expenditure and 5% on capital employed. Once it is amortised and written off from operating profit through COS, the owners equity reduces. There is no treatment for a director to draw the recovered 5% amount. That recovered amount will be within the owners equity under retained earnings. However, since owner is legally entitled to profits, one can draw that recoverable amount from profits in which will impact the drawings account. He can withdraw more as well, but liquidity risk could arise.

https://cleartax.in/s/amortization-preliminary-expenses