Cash flow Statement

I think it should be shown under Cash Flows from Financing Activities as cash out flow.

hi palak

in general when company is incorporated the payment of preliminary expenses in made through issue of shares to promoter.
 

but if the company has paid cash in relation to preliminary expenses to promoters then in my opinion it should be classified in 'Operating Activities'

reason being its not an investment, further as per AS-3 financing activities are those which results in change in the size and composition of owner's fund and as such no change in owners fund come into existence.

Operating activities are those which are related to principal revenue generating activity of an entity and OTHER ACTIVITIES THAT ARE NOT INVESTING OR FINANCING

Hope it will be useful for you

In my opinion preliminary expencess are not operating expencess but as per opinion given by MR. Shantnu goyal  that  OTHER ACTIVITIES THAT ARE NOT INVESTING OR FINANCING are operating activity .

it should be shown in cash flow from operating activity

Regards

Madhusudan Kabra

i think it will be shown as an outflow under head " financing activities".... as it is no way, related with operating flows as per prevelent theory i.e., operating outflows can be linked, on one to one basis with operating inflows or revenues. Since there is no such matching lies in case preliminary exp. they ought to be shown in "financing activities".

But i do agree with the fact that such expanses dont contribute towards the capital. I think we should come with an unanimous answer to this question.
 

IN CASH FLOW STATEMENT PRELIMINARY EXPENSES ARE ADDED BACK TO NET PROFIT AND IT IS SHOWN UNDER CASH FROM OPERATING ACTIVITIES

Agree with Aman, it should be shown under the head of Financing Activities.

preliminary expenses are non operating expenses......as it is written off in p&l ,it should be  added with net profit in operating activities because we have to show the actual flow cash flown from operating activities.................

it should be shown under oprating activity

It is added to Net Profit for calculating Cash from Operating Activities in Indirect Method.

Look... i hv the following concept in my mind....

PRELIMINARY EXPENSES
To my mind it comes that preliminary expenses are borne at the time of capital expansion and reduction, promoting a new company etc.
On the face of it , this seems to be helping in financing the co's need for funds.

But as in nature prelim exp are only incidental exp which are just related to the main funding exercise of raising or reducing capital.

Thus , nowhere in this world you can call it a financing activity.

Hence in my view and concept it should be shown in operating activities.

i think it should be shown under financing activities....

                                         2001      2002

Preliminary Exp             115000 90000

it means Prem Exp Written Off....25000 Added back in NP Operating activities

it will come in Investing activities if .....Example Developement Exp shown in asset side of B/S

like this         2001  2002

                  90000  115000

this shows additional expenditure(Outflow) incurred of Rs 25000, it should be reduced in Investing Activities