Which expenses are to be charged to after incorporation period only?

Certain expenses belong only to the post-incorporation period, such as director’s fees, managing director’s salary, debenture interest, discount on issue of debenture, discount on issue of shares, etc., have to be charged for the post-incorporation period.

How do you treat profit prior to incorporation and profit after incorporation?

Thus, any profit/loss made before the incorporation is known as “Profit (Loss) Prior to Incorporation” which is treated as a capital profit and the same cannot be distributed as business profit. Hence, it cannot be distributed by way of dividend.

What is profit prior to incorporation How do you treat in accounts?

How are pre incorporation expenses treated?

To records the preliminary expense incurred prior to incorporation of the legal entity following entry should be passed on the first day of the incorporation : Debit the preliminary expenses A/c and Credit the Profit & Loss A/c for the amount determined as preliminary expenses.

Are expenses preliminary?

The expenses incidental to the formation of a company also regarded as a preliminary expense. These are considered deferred revenue expenditure. Preliminary expenses are shown on the assets side of the balance sheet under the heading other assets.

What is pre incorporation period and post incorporation period?

period: The period before incorporation and the period after incorporation is called as pre incorporation and post incorporation period. (i,e. period between the business taken over and incorporated) • Post incorporation period = April to Dec = 9 months. incorporation is called as Post incorporation Profit/Loss.

What is profit prior to and post incorporation?

Profit prior to incorporation is the profit earned or loss suffered during the period before incorporation. It is a capital profit and not legally available for distribution as dividend because a company cannot earn a profit before it comes into existence.

Are preliminary expenses deductible?

Preliminary expenses are expenses which the promoters of a company incur at the time of incorporating the company. Generally, preliminary expenses are disallowable on the ground that they are of a capital nature or incurred prior to the setting up of a business.

Why preliminary expenses are assets?

Preliminary expenses are basically are part of deferred assets in Balance Sheet. These are amortized/ written off to P&L on a systematic base till the the balance goes to null. Preliminary expenses are the expenses that spent by the promoters before the incorporation of company.

Are preliminary expenses Operating expenses?

All expenses incurred before a company is formed i.e. cost incurred before the start of business operations is termed as preliminary expenses….Accounting & Journal Entry for Preliminary Expenses.

What are included in preliminary expenses?

Examples of the preliminary expenses

• Company incorporation expenses.
• Logo expenses.
• Amount paid for stamp duties.
• Consultation charges for initiating a company.