incorporation Expenses

Treatment under Companies Act 2013

In view of facts that the preliminary expenses does not result into any physical or tangible assets, thereby taking away any possibility of depreciation to be recorded in the books. For the useful life of the assets. The Companies Act &  Schedule VI provides for recognition of 1/5th of the total preliminary expenses each year for five consecutive years.

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.