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what is the meaning of preliminary expenses and how you
shown in balance sheet
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Answer Posted / anjali
preliminary expenses are incurred in the formation of a company or before incorporation . some examples are fees to ROC, licence fees , legal charges and other incorporation related charges incurred by the promoters. preliminary expenses are shown on the assets side of the balance sheet and amortised over the first 5 years as per the INCOME TAX ACT,1961.The amortised amount is written off in the P/l a/c on the debit side.
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my boss (Managing Partner of a firm) promoted along with his wife a private limited company. he and she spent some Rs. 75,000/- (approx) for the promotion of the company. i know that they usually fall under the head of preliminary expenses. but after receiving the certification of incorporation of the company how shall i repay them to the promoters i.e. what is the accounting entry in the books (initial books of accounts) for the expenditure incurred. they have kept in hand 5,00,000/- each to meet the expenses and they were allotted shares of equal to the amount. can i allot shares for a consideration of cash from and excluding the preliminary expenses. can i take cash towards the share application money (being the cash more than Rs. 20,000/-) as the company has not opened a bank account yet. please give me the detailed answer with journal entries that can be entered in tally. thank you.
