why preliminary expenses are written off every year from
profit and loss a/c.??
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Answer Posted / h.r. sreepada bhagi
Preliminary Expenditure is the expenditure incurred on
formation of a company. Since the benefit of this
expenditure is spread over the life of the company, it would
not be prudent to charge of the whole amount to the Profit &
Loss A/c of the year when it is incurred. Again it is not a
real asset & treated like Deferred Revenue Expenditure &
carried forward in the Balance Sheet to the extent not
written off/charged off.
Since the same can not be carried forward for an unknown
future, laws provide for writing it off over a certain
period of years (i.e. 5 yrs,10 yrs, etc). Hence it is
written off every year till it becomes zero.
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