Question

Name the expenses that are incurred in connection with the formation of a company?

Options

• Preliminary expenses

• Miscellaneous expenditure

• Expenses on Issue of Shares and Debentures

• None of these

Answer 1

Preliminary expenses

Explanation:

Preliminary expenses relate to costs associated with the establishment of a company, such as printing various documents, fees paid to lawyers for the preparation of such documents, stamp duty, registration and filing fees paid at the time of company registration, and so on. The money spent on these products is grouped together as 'preliminary expenses,' which are written off over a three to five-year period. The profit and loss account is debited for the amount written off each year. On the assets side of the balance sheet, the balance is represented under the heading 'Miscellaneous expenditure.'