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Accounting treatment of preliminary exp

gururaj (a) (27 Points)

11 February 2012

Preliminary exp of Rs.50000/- incurred by the promoter director. what the entry should be passed in the books of company? whether the company is liable for the said dues to the directors?

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Tanash Chakraborty (KPMG) (292 Points)
Replied 11 February 2012

yes preliminary expenses are the expenses of the company ,once it get incorporated and accepts the liability of the expenses.they relate to the expenses that had been incurred by the promoter towards bringing the company into existense.hence it should be recognised as preliminary expenses and the company is supposed to be bearing them.

now since it is not revenue in nature,as it is not related to a particular year they shall be treated as deferred revenue and shall be shown under the head miscellaneous expenses(schedule VI) and shall be amortised over the years to the profit and loss account.

the entry shall be as under---

Preliminary expenses a/c Dr. XXX

To Director/Cash a/c XXX

based on the facts and circumstances amortise the total amount over the years to the profit and loss account.

gururaj (a) (27 Points)
Replied 11 February 2012

ok thanks but somewhere i hv read that preliminary exp paid by the director is not the actual liability of the company as the co was not in existence as a legal entity.

purva agarwal (student) (53 Points)
Replied 11 February 2012

Doubt- Debenture interest is a non operating expense. Then why dont we add it back in p/l adjustment account? In funds flow statement chapter

Tanash Chakraborty (KPMG) (292 Points)
Replied 12 February 2012

yes ofcourse the amount of preliminary expenses would not be the liability of the compnay until the company has come into existence..and as the comp comes into existence it rattifies the preliminary expenses and hence from then onwards it becomes the liabilty of the company

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