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Preliminary Expenses

Sudhag (Chartered Accountant and Company Secretary. Visit at : www.taxpertpro.com) (1231 Points)

18 March 2009

I will be glad if somebody can assist me with this.

Foriegn company sent the money to the personal account of Mr.A (say in may) to open the company in India. For three months Mr. A incurred the expenditure out of this amount and paid the expenses like rent /salary etc even when the company was not incorporated. The company got incorporated in August. What will be accounting treatment of all the expenditure during this period from May to Aug?

Can it be taken as Preliminary expenses and therefore taken to profit and loss account as per AS 26.

Or it should be ignored and settled outside the accounts with Mr. A..

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5 Replies

CA CS CIMA Prakash Somani (Landmark Group) (23502 Points)
Replied 18 March 2009

It can be treated at par with priliminary expenses though amount has been recd from outside india, the nature of expense is not changed.

it can be taken as Preliminary expenses and therefore taken to profit and loss account as per AS 26.

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CA SUDIPTA SINHA (Commerce Coaching- Accounts Cost FM) (735 Points)
Replied 20 March 2009

that expenses should be treated as preliminary expinditure and be written off in the profit and loss a/c.......

Sudhag (Chartered Accountant and Company Secretary. Visit at : www.taxpertpro.com) (1231 Points)
Replied 20 March 2009

But the problem faced is this that the FIRC says that the amount was received as" Loan Payment". and also since the expenses are incurred three months before incorporation . can it still be taken to accounts. set apart the FEMA thing.

Means that the fact the expenses are incurred befire three months of incorporation. Does it make any difference?

CA Devanshi Gandhi (Ajani) (FCA DISA Mcom CIFRS & LLB) (9058 Points)
Replied 27 March 2009

this can be treated as preliminary expence

Sudhag (Chartered Accountant and Company Secretary. Visit at : www.taxpertpro.com) (1231 Points)
Replied 27 March 2009

Originally posted by :CA CS Prakash Somani (A helping Hand)*
"	It can be treated at par with priliminary expenses though amount has been recd from outside india, the nature of expense is not changed. it can be taken as Preliminary expenses and therefore taken to profit and loss account as per AS 26.	"