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Pre incorporation Expenses

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Shyam Lal Naik (Querist)
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10 April 2011 Dear Experts,

Before, incorporation of a company, some expenditure has been incurred, in addition to normal preliminary expenses like preparing MOA & AOA etc.

What is the Accounting Treatment ?

What is the compliance requirements under the Companies Act ?

Kindly favour with your reasoned reply.

Rgds,

SL Naik

CA KRISHNA KUMAR DARUKA

CA KRISHNA KUMAR DARUKA (Expert)
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11 April 2011 AS 26 dealing with intangible assets covers preliminary expenses as well. The period over which these preliminary expenses are to be amortised is best left to the judgment of the directors of the company. 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.

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