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Treatment of expenditure incurred before commencement

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Mallikarjun Naman

Student

21 Points Posted on 19 December 2014

Dear Sirs/madams,

A Ltd, Company incorporated on 02-june-2012.It is incorporated only for the purpose of Construction of a Project.

Comapny has started construction on 03-apr-2013.

My doubt is about whether Expenses incurred prior to 02-June-2012 will be treated as Preliminary Expenses or Expenses incurred upto 03-Apr-2013 will be treated as Preliminary Expenses.

Please clarify my doubt.

Thanks in advance.

Replies (1)

CA Charu Hinger

Assistant Manager-Blue Dart Express Ltd

72 Points Posted on 19 December 2014

Preliminary expenses covers all expenses before incorporation of the business ,if any expense has been spent after commencement or incorporation of business the same is not considered as preliminary expenses. These expenses will be written off in 5 equal year installment in profit and loss A/c. You can also transfer whole amount in single year but for income tax purpose 1/5 of the amount will be considered.