28 August 2013
treatment of preliminary expenses in the very first year in cash flow statement according to AS-6 where we take carry forward part of that
28 August 2013
under cash flow only cash exp and income and other cash transaction are shown except for cash flow from operating activities watever is debited to p & lwill be added back.
18 July 2024
According to Accounting Standard (AS) 6 - "Depreciation Accounting," the treatment of preliminary expenses in the cash flow statement would depend on how they are incurred and subsequently treated in the financial statements.
### Preliminary Expenses Treatment:
1. **Initial Recognition (First Year):** - **Cash Flow Statement (Direct Method):** Preliminary expenses are typically expensed off in the year they are incurred. Therefore, they would not appear directly on the cash flow statement because expenses are recorded in the income statement, not in the cash flow statement. - **Indirect Method (Operating Activities):** If using the indirect method, adjustments for non-cash expenses like preliminary expenses are added back to net profit in the operating activities section to derive cash flows from operating activities.
2. **Carry Forward (Subsequent Years):** - If preliminary expenses are deemed to provide future benefits (e.g., through amortization over future periods), they are capitalized (included as an intangible asset) and amortized over their useful life. - **Cash Flow Statement:** During the subsequent years, any amortization of preliminary expenses is treated as an operating cash flow adjustment under the indirect method.
### Cash Flow Statement Presentation:
- **Operating Activities:** Amortization of preliminary expenses (capitalized in previous years) is presented in the operating activities section of the cash flow statement. - **Investing or Financing Activities:** The initial expenditure on preliminary expenses, if expensed immediately, does not appear directly in the cash flow statement. However, if there are transactions related to capitalizing or financing these expenses, they could potentially impact investing or financing activities, depending on the nature of the transaction.
### Conclusion:
- **Initial Year:** No direct impact on the cash flow statement for the expenses incurred in the first year (assuming they are expensed immediately). - **Subsequent Years:** Amortization of preliminary expenses (capitalized in previous years) appears as an adjustment in the operating activities section of the cash flow statement.
Always ensure to adhere to AS-6 guidelines and consult with a qualified accountant or financial advisor to accurately reflect the treatment of preliminary expenses specific to your company's situation and local accounting standards.
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