24 April 2011
As regards part 1 of your question Mr Sanjay Gupta is correct.
But as regards part 2 of your question my opinion is that it should be written off in one year only because as per Accounting Standard 26 Preliminary expenses do not meet the definition of assets and must be expensed with in the year of incurring.
25 April 2011
I will again request Mr Tareq Imam to read AS 26 and let me know whether writing off Preliminery Expenses in 5 years is correct treatment as per this accounting standard. This was definitely correct before this AS but the Institute has also clarified that preliminery expenses should be written off in one go as per this accounting standard which is mandatory for all companies in India.
01 February 2013
You are correct that as per it 1/5 is allowed every year. But as per accounting standard you have to write off full amount in first year. Moreover in accounts you have to recognise deferred tax on this account.
13 June 2015
As per section 35D of the Income Tax Act, Preliminary expense to write off 1/5 in every year
AS 26 suggests writing off intangible assets over a period of 10 years, though a different period is permissible if it is justified in the opinion of the management. It is a common practice to write off these preliminary expenses in a period of five years, though there is no legal provision to this effect. A company can as well write off its preliminary expenses in the same year as it incurs.
My opinion is to write-off preliminary expense in the same year.