Treatment of preliminary expenses

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CA Akhilesh Kumar Kandpal (Querist)
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29 July 2017 How to write-off preliminary expenses?
Some says in one time...
Some says in five years....
is there any legal requirement??

CA Rashmi Gandhi

CA Rashmi Gandhi (Expert)
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29 July 2017 Written off in 5 equal instalments. Max upto 5% of cost of assets or capital employed.

CA Akhilesh Kumar Kandpal

CA Akhilesh Kumar Kandpal (Querist)
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29 July 2017 can you refer me the section or source please???

CA Rashmi Gandhi

CA Rashmi Gandhi (Expert)
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29 July 2017 Refer Sec 35D of IT Act

CA Akhilesh Kumar Kandpal

CA Akhilesh Kumar Kandpal (Querist)
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29 July 2017 You are right but I am asking about the treatment in the books of accounts maintained in company law not about filing return......I want to know whether there is any provision in company law or in any accounting standard which says that it is mandatory to amortise in 5 installments...

CA Rashmi Gandhi

CA Rashmi Gandhi (Expert)
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29 July 2017 The Companies Act & Schedule VI provides for recognition of 1/5th of the total preliminary expenses each year for five consecutive years. To record this transaction following accounting entries are passed. To records the preliminary expense incurred prior to incorporation of the legal entity following entry should be passed on the first day of the incorporation : Debit the preliminary expenses A/c and Credit the Profit & Loss A/c for the amount determined as preliminary expenses. As stated above the preliminary expenses can be written off in five years, to record that following entry should be passed : Debit the Preliminary expenses written off the credit the preliminary expenses A/c with the amount which is equal to 1/5th of the total preliminary expense booked as per point no 1.

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