Question

How would you verify the preliminary expenses

Answer 1

Preliminary expenses are the expenses incurred at the time of promotion, floatation or incorporation of a company. The following items are usually included in this head:

Cost of printing the Memorandum and Articles of Association, Prospectus, Letters of Allotment, etc

Points to remember
(i) Preliminary expenses are of a capital nature, but not represented by available assets and as such, they should be written off out of profits as soon as possible.

(11) Such expenses may be written off out of the premium received on issue of shares as laid down in section 78.

(iii) Preliminary expenses as not written off to date should be shown as a separate item in the Balance Sheet under the head, ‘Miscellaneous Expenditure’.

(iv) Underwriting commission and brokerage on shares or debentures should not be included under the head, ‘Preliminary Expenses’ and hence, be shown separately in the Balance Sheet.