Preliminary Expenses

Hi Babu Kartik,

Regarding preliminary expenses (expenses incurred before the commencement of business), here are some key points:

1. Board Meeting Approval:
   Yes, ideally all preliminary expenses should be approved by the Board of Directors through a formal resolution in a board meeting. This helps in proper documentation and accounting treatment.

2. Supporting Documents:
   Even if you don’t have bills or official receipts for some expenses (like licenses or subscripttions), you should keep any available proofs such as:

   • Bank statements showing payments from the director’s personal account

   • Emails or communications related to the expenses

   • Any official letters or application acknowledgments
     This helps substantiate the claim during audit or tax scrutiny.

3. Reimbursement to Director:
   Since these payments were made from the director’s personal funds, the company should reimburse the directorafter approval, and pass appropriate accounting entries.

4. Accounting Treatment:
   Preliminary expenses are usually treated as intangible assets or deferred revenue expenditure and written off over a period (typically 5 years) as per accounting standards.

Summary:

• Yes, get approval in a board meeting.

• Maintain whatever proof you have.

• Reimburse director with proper documentation.

• Properly classify and amortize expenses in books.