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TREATMENT OF PRELIMINARY EXPENSES IN ACCOUNTING STANDARD (Accounts)

This query is : Resolved

HARINDER

( Author )
30 July 2008

HOW WE DEAL WITH PRELIMINARY EXPENSES ACCORDING TO ACCOUNTING STANDARDS

WHETHER ACCOUNTING STANDARD 26 IS APPLICABLE FOR IT ?

PLEASE ALSO ELABORATE THE ENTRIES TO BE MADE IN THE BOOKS RELATED TO IT

CA Anand Sarda

( Expert )
30 July 2008

Preliminary Expenses are governed by Guidance Note on Treatment of Expenditure during construction period. and not by AS 26.
These Expenses include company formation expenses in connection with issue of shares and debentures and getting the preliminary public documents such as memorandum, articles prospectus, etc.
These should be written off in a period not exceeding 5 years.

HARINDER

( Author )
30 July 2008

Sir,

In my knowledge the treatment of 5 years is in accordance of Income Tax Act 1961 and

what we do about preliminary expenses in accounting standards?

hitesh

( Expert )
31 July 2008

I opine that preliminary expenses are covered by Guidance Note on Treatment of Expenditure during Construction Period but these expenses should be capitalized by apportioning them on capital assets.

But in Income Tax Act Sec 35D deals with preliminary expenses and treatment of the same.