Preliminary expenses

PRELIMARY EXPENSES ARE LIKE LOSSES THEY SHOULD BE WRITTEN OFF IN FIVE YEARS FROM TYHE STARTING ACCORDING TO AS-26 PRE.M. EXPENSES 1/5 WRITTEN OFF SHOWN IN THE PROFIT & LOSS . TAKE EXAMPLE IF U HAVE 10000 PRELIMARY EXPENSES  THEN 1/5 2000 SHOWN IN PROFIT AND LOSS BALANCE 8000 IN BALANCESHEET IN FOUR YEARS U WRITTE OF RS 2000 AND THE IN FIVE YEAR THE BAL OF PRELIMARY EXPENSES WILL BE NIL

Prelminary Exp is the ledger of B/s..  So to write off,  u hav to open new GL called "Prelim. Exp written off" and keep the same under INDIRECT EXP of P&L.

So u can pass entry as follows:

Prel Exp w/off A/c. (P/L) Dr.  xxx
     To Prel Expenditure  (B/S)   xxx

Finally B/s amount gets reduced by the write off amt. and exp will be booked

Prem Exp have diffrerent treatments for Tax & for Accounting.

Prem Exp. in accounting are covered under the ambit of AS-26. As per As-26 (Revised), Any expense incurred should be routed through P& L only, if it does not satisfy 'Assets Recognition Criteria'. 

The Asset Recognition Criteria is:

1.) The asset should have the future economic benefits;

2.) The asset should be controlled by the enterprise;

3.) The amount which needs to be capitalised should be measurable;.

Consequentially, Prem Exp should be debited to the P&L account only in the same year in which they are incurred, since it does not meet the Asset Recogniton Criteria.

However, this rule has an exception i.e treatment for Share Issue Expenses. Share Issue Expenses can be capitalised and can be shown under the head' Misc Expenditure upto the extent not written off' and shall be written off during the span of 10 years..

As far as Taxation treatment is concerned, if any assessee being a Resident Company or Resident Non Corporate Assessee incurrs the expenses specified under section 35D of Income Tax Act for setting up a new entity or for the substantial expansion of the existing business then such expense will be spread over and will be allowed as deduction during the span of 5 years, starting from the year in which the entity was formed or substantial expansion was made. 

However, such expense should be restricted to the 5 % of Cost of project in case of Non Corporate assesee and 

5% of Cost of Project or 5% of Capital Employed, whichever is higher, incase of a Resident Company.

The Specified Expense under section 35D are expenses incurred for the purpose of:

Conducting Market Survey, Feasibility Study, Preparing Project Report, Enggineering Fees, Legal Expense for drafting any agreement, etc, in case of Non Corporate Assessee; and

Conducting Market Survey, Feasibility Study, Preparing Project Report, Enggineering Fees, Legal Expense for drafting any agreement or MOA or AOA, drafting of MOA or AOA and issue expenses of shares or debentures (including underwritng commision, brokerage, advertisement of Prospectus, etc), in case of a Resident Company. 

Agree with all

agree with  every one

agree ith all.

I agree with all

i agree above concept

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all petty expenses are shown in the profit & loss a/c.but the closing petty cash balance in shown in the balance sheet.