What are preliminary Expenses?

1.       These are the expenses incurred at the time of formation of a company. The following are the expenses:

1.       Expenses relating to drafting and printing documents in relation to the registration of a company.

2.       Stamp duty on authorized capital. Registration fees.

3.       Cost of common seal and preliminary books.

4.       Expenses relating to the drafting, printing and issuing of prospectus.

5.       Commission payable to underwriters of shares etc.

“Security premium account” is used to write off this preliminary expense.  Some companies write it off over the years in profit and loss account. The portion which is yet to be written off will be shown as “miscellaneous expenditure” on the asset side of the Balance Sheet.

Ok! but reader wants to know is it only about company not for partnership business?

The answer is there is no such provision in partnership act regarding preliminary expenses. I think it’s because the preliminary expense of partnership is very minimum in comparison to company.

Is there any accounting standard relating to preliminary expenses?

Yes! AS 26 –intangible assets also deals with preliminary expenses.

If you have any other questions regarding this topic please write me in the comment box below.