PRELIMINARY EXPENSES

 PRELIMINARY EXPENSES

Under the Companies Act, 2013, preliminary expenses refer to the costs incurred by a company in connection with the formation, registration, and establishment. These expenses are incurred before the company starts its regular business operations and are typically associated with the setup and organization of the company.

 

Here are some key points regarding preliminary expenses under the Companies Act, 2013:

 

1. Nature of Expenses: Preliminary expenses may include various costs incurred during the incorporation process, such as legal fees, registration fees, stamp duty, printing expenses for memorandum and articles of association, expenses related to the issue of shares or debentures, costs of prospectus preparation, and other administrative expenses.

 

2. Treatment in Financial Statements: According to the Companies Act, preliminary expenses are considered deferred revenue expenditure and are written off over some time, usually not exceeding five years, through the profit and loss account or by way of adjustment against securities premium account or any other reserves of the company.

 

3. Amortization: The Companies Act allows companies to amortize preliminary expenses over a while, reflecting the period over which the benefits of these expenses are expected to accrue to the company. The amortization process involves spreading out the initial costs over the useful life of the company.

 

4. Disclosure: Companies are required to disclose details of preliminary expenses in their financial statements, including the nature and amount of costs incurred, the method of amortization

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