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Recording preliminary expense

CA Tushar Singhania (Asst. Manager Accts & Fin.) (402 Points)

27 September 2012

Sir/Madam

I would like to know in which year had the institute removed the provision for recording preliminary expenses and deffering the same as a fictitious asset? There are a few companies which still continue to record preliminary expenses and continue writing it off over a period of 5 yrs

Thanking you

CA Tushar Singhania

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2 Replies

CA Harsh Lunia (Audit) (81 Points)
Replied 27 September 2012

As per para 56 of AS 26, preliminary expenses should be writen off in the year in which are incurred. The 5 year write off provision is available under the IT Act and not under Accounting Standards.

For accounting purpose, write it off completely in the 1st year itself and create a deferred tax asset with respect to the 4/5th portion that will be disallowed while computing current years income tax and will be allowed in later years

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Bhaskar Unnikrishnan CPA CMA (Accounts / Administration) (414 Points)
Replied 30 September 2012

Originally posted by : CA Harsh Lunia
	As per para 56 of AS 26, preliminary expenses should be writen off in the year in which are incurred. The 5 year write off provision is available under the IT Act and not under Accounting Standards. For accounting purpose, write it off completely in the 1st year itself and create a deferred tax asset with respect to the 4/5th portion that will be disallowed while computing current years income tax and will be allowed in later years