- Sep
- 22
- 2012
How to Disclose Preliminary Expenses in Revised Schedule VI
We receive lost of questions regarding disclosure of Preliminary Expenses in Balance Sheet as per Revised Schedule VI. Every one have different opinion on how to disclose the same in revised schedule VI. In our view Miscellaneous / Preliminary Expenditure should be disclosed as follows in revised schedule VI :-
In Profit and Loss Account :- Preliminary Expenditure written off during the year should be shown in notes Under ‘Other Expenses’.
In Revised Balance Sheet :- In Revised Balance Sheet it should be shown as ‘Other Assets’ and its amount should be shown in non current Assets column.
A Format of such Presentation is as follows :-
In Our View AS 26 do not cover the following :-
Alternative option for Presentation of the Preliminary Expenses in Balance Sheet :- We may take the same as covered by Accounting Standard 26 of ICAI on Intangible Assets and write off the expense fully in the year of occurrence.
Sandeep Kanoi+
Sir i totally agree with the views tht AS will overide revised sch but i am an student of cs so if an question come in exam nd there is a premilinary exp for ex 10000 and 5000 has been written off so what shall i do in tht case shud i follow AS and make a note or else write off amt should show in p&l as other exp and the amnt left will shown as other assest bit confuse ib this i m really oblige if you cud help me.
Why the preliminary expenses should be shown under other current assets?
Am abiodun by name. am from Nigeria, am an upcoming accountant. i also have this problem(Preliminary Expenses), i got confused in the treatment. but with what i have seen in the accountants’ comment above, it made the work seems to be easier for me. thanks so much
What if there is not a adequate profit to write-off the same…???
For e.g
if profit before w\off is 5000/-
and preliminary exp amount to 10000/-
then what should be the treatment in above case…???
All the preliminary expenses incurred should be w/o in P&L A/c in that year itself. Also as per AS-26 there is no need to show the preliminary expenses in the Balance Sheet.
Preliminary Expenses can be written off in Income Tax Act over a period of 5 years. But under Accounting Standards or IFRS, it hass to be charged to P & L in the first year itself. This will give rise to Deferred tax asset (assuming compnay earns profits in coming years) as this is temporary difference and will be reversed over five years.
It should be disclosed separately under “other expenses” in income statement.
Fully agree with Rajiv, After introduction of AS -26 Accounting standard on Intangibles, there is no scope to recognise Preliminary expesnes as asset and has to be written off immediately. The test given in the AS for recongnising an Intangible must satisfy. else it has to go to P&L
Preliminary Expenses should be charged /write off in the same year in the profit and loss account as per AS- 26. There is no scope to show in the Balance Sheet under the head ” other assets ” in the main head of ” Non Current Assets.
preliminary expenses Dr. Rs 5000/
Cash / Bank Cr. Rs 5000/-
2.Other Expenses ( Preliminary Expenses ) Dr.Rs 5000/
preliminary Expenses Cr. Rs5000/
3.Profit and loss account Dr. Rs 5000/
other expenses Cr. Rs5000/
in the note forming part of the financial statement also disclose the amount of Rs 5000/ under the head other expenses includes Rs 5000/ as preliminary expenses incurred by the company has been charged to profit and loss account ( as per revised norms ) instead of showing as Assets under the head Miscellaneous Expenditure ( as per earlier norm ) to be set off in subsequent years profit.
This is my View.
CA. Subhash Chandra Podder , FCA
Kolkata
23/09/2012
@ Tax Guru
i completeley agree with Rajiv
In Revised Schedule,order of authority has been given Istly to AS,then co law and then Rev. Sch VI. It means first we have to refer to AS for the treatment and AS 26 says Misc. exp are not assets and hence it should not be shown as assets. However for academics or examination purpose it may be shown under Non Current assets. In reality(practical life)if there is any pre exp standing in the books, then it should be written off from opening balance of P & L A/c (referring to the provisons of As-26)…
My Opinion is that there is no scope for recognising prelimnary expenses in the Balance Sheet. Prelimnary expenses has to be written off in the same year when expenditure incurred. AS-26 and opinion of ICAI may be reffered in this regard.