preliminary expenses

[Israr-ul-haq]

Dear Group Members.

I will be very thankful to your if anyone let me know about the following treatment.

Q#1.how will preliminary expenses such as legal fees paid to secp+ professional fees pertaining to incorporation of a company be treated?

Q#2 how will nominal expenses such as professional fees + legal fees be treated prior to commencement of business certificate in case of public company?

Q# Earlier, the above expenses were treatment as preliminary expenses was defffered which then was charged off to P&l in 3 years or 5 years.
The above in recent past has changed .What is the treatment now?

Regards

ISRAR-UL-HAQ

[ciapk]

Dear Israr,

All such expenses would be charged to P & Loss account as and when these are incurred, deferred expenses are no more allowed.

[danishayub_76]

Dear Brother!
Thanks for the information. Can you please quote the relevant IAS or any other rules regarding charging the preliminary expenses to P & L in same year without deffering it.

I will be waiting.

Best wishes


<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica, san" id="quote">quote<hr height="1" noshade id="quote"><i>Originally posted by ciapk</i>
<br />Dear Israr,

All such expenses would be charged to P & Loss account as and when these are incurred, deferred expenses are no more allowed.
<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">

[danishayub_76]

The question still unanswered. Dear Brothers plz give your comments.

[kamranACA]

Dear Danish

For deferring an expense (or in other words capitalizing it), it should the definition and recognition criteria of an "asset" given in the Framework to the International Financial Reporting Standards (given in IFRS bound volumes). Further, the concept of deferring some costs on the plea that these are Development costs that can create inflow of economic benefits has to be seen strictly under IAS-38 which have given specific yardstick to decide on.

The costs mentioned in above post do not constitute a Development cost, so these do not meet the definition of an asset. These are also not to be misconstrued as "trial run period costs" or "testing costs" of a newly installed/errected plant and machinery (paragraph 17 e of IAS-16).

Any thing that embody's outflow of economic benefits but does not makeup an asset has to be expensed out. You can again see the definition and recognition criteria of "expense" from Framework to the International Financial Reporting Standards.

As far as "deferred cost" is concerned, there HAD BEEN no concept of such deferring in IASs. This was done because it was allowed under the Companies Ordinance, 1984. After the revision of Fourth and Fifth Scehdules, this provision has been taken away and now none of the company is allowed to defer any costs under the previous concept.

There is a detailed discussion on one of the old threads on this topic (in similar sub-forum); and you can find it out easily if you wish to.

Regards,