why do we take preliminary expenses into asset side?
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Answer Posted / h.r. sreepada bhagi
Preliminary Expenditure - is shown under Miscellaneous
Expenditure (To the Extent Not Written off of Adjusted) on
the Assets side or under Application of Funds in the Balance
Sheet. It represents the amounts spent on getting the
company formed & registered & the benefits of this is spread
over the life of the company. If this is charged to the
Profit & loss Account in the year when it's incurred, True
Profit/Loss is not arrived at for that year, as the expenses
are overstated.
In order to even this effect, the expenditure is written of
over a reasonable period of time (Eg. 5 yrs. or 10 years).
Since it is in the nature of an intangible asset, it will
appear as an asset, till it is fully charged off to Profit &
Loss A/c.
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