Before incorporation and commencement of business, company and the promoters of the company may incurred so many types of expenses like statuary fees and company logo designing, in some cases rent for the office premises during the time of incorporation not after incorporation etc… These are all comes under preliminary expenses .in simple words preliminary expenses are the expenses that spent by the promoters before the incorporation of company
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The benefit of the preliminary expenses is long-term so it is treated as intangible asset and shown in Balance sheet under Miscellaneous assets. 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 consider.
1. Preliminary Expense – Dr (Current Asset)
2. Preliminary Expenses Written Off – Dr (Indirect Expenses)
To Preliminary Expenses