Are share issue expenses preliminary expenses?
Preliminary expenses are those incurred in connection with the incorporation of the company. Shares are issued after the company is incorporated. Share issue expenses are not a part of preliminary expenses. Therefore, it is a wrong to disclose share issue expense as part of preliminary expenses. No accounting entry would be permissible under this head once the company is incorporated. How to record share issue expenses? These are to be recorded under a separate head of account. Section 78 of the Companies Act, dealing with utilisation of securities premium, states defraying of preliminary expense under a clause different from the clause defraying expenditure incurred on issue of shares and/or debentures. It also indicates that share issue expenses are different from preliminary expenses. Recognising preliminary expenses: Since the expenditure is incurred and paid by the promoters even before the company is incorporated, there is normally a clause that the promoters are reimbursed of al
