Preliminary / preoperative expenses

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Querist : Anonymous

Querist : Anonymous (Querist)

24 August 2012 Can Preliminary / Preoperative expenses shown in Balance Sheet of a company termed as Fictitious Assets?

Amol S Joglekar

Amol S Joglekar (Expert)
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24 August 2012 The purpose for which they are sought for is very important. To name a few.....Banks do not consider them as fictitious. In most of the take over attempts, they are considered as fictitious.

Querist : Anonymous

Querist : Anonymous (Querist)

27 August 2012 Thanks Sir. Could you please tell whether Preliminary / Preoperative Expenses are considered in the Book Value of Assets while calculating FMV of unquoted shares u/s 56 of IT Act.

As FMV = (A-L)*PV/PE

where A = Book Value of the Assets in the B/S as reduced by any amount paid as advance tax under the I.T.Act and any amount shown in the Balance Sheet including the debit balance of P & L Account or the P & L Appropriation A/c which does not represent the value of any asset.

For the above, if in a company's balance sheet, Fixed Assets = 100, Current Assets = 250 (Including Advance Tax 25) & Preliminary/Preoperative Exp. = 150. What would be the value of "A" for calculating the FMV of unquoted shares?

Amol S Joglekar

Amol S Joglekar (Expert)
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29 August 2012 100+250-25+150=475. (As an auditor, you need to check the amount of 150 shown under preliminery expenses. If found genuine, it will form the part of A for deducing FMV.)

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