Preliminary expenses accounting

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PRATIKSHA (Querist)
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15 November 2016 if at the incorporation the share capital is Rs.1,00,000 in cash and preliminary expenses are 45,000. now I will show 100,000 under share capital and 100,000 under cash. then how should I book the preliminary expenses of 45000. how my balance sheet will get tally????

Sangam Kothari

Sangam Kothari (Expert)
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15 November 2016 Preliminary Exp will be reimbursed to those who have incurred such amount this reduces your cash balance by Rs. 45000 and the same need to be debited to reserve and surplus accoun and this will leads to reduction in liability side by Rs 45000 then your balancesheet will het tallied

PRATIKSHA

PRATIKSHA (Querist)
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15 November 2016 THEN NO NEED TO SHOW ANYTHING IN PROFIT AND LOSS ACOUNT

Sangam Kothari

Sangam Kothari (Expert)
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15 November 2016 As per AS 26 " Intangible Asset" Preliminary exp need to be expensed out as and when it is incurred. Therefore the compelete amount is need to be debited to P& L account which will lead to increase your losses or reduces the profit for the year and ultimately effects the reserve and surplus account in the balancesheet

PRATIKSHA

PRATIKSHA (Querist)
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15 November 2016 but we also write off 1/5th every year

Sangam Kothari

Sangam Kothari (Expert)
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15 November 2016 That is as per Sec 35 D of Income Tax act 1961, and need not to be followed for preparation of financial statements.
it need to be followed only for calculation of taxable income from PGBP .

PRATIKSHA

PRATIKSHA (Querist)
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15 November 2016 ohkk understood .. thank you sir

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