What Is the treatment for preliminary expenses, underwriting commission and development expenditure in the cash flow statement? Please mention both increase and decrease.
Dear Student,
The query asked by you is one of the common doubt of many students like you. In response to your query, we would like you to browse few queries already answered by our experts. As far as treatment of these items is concerned, the same is as follows:
1. Preliminary Expenses:
These are the expenses incurred by the company prior to its incorporation. Such expenses cannot increase during the life of the company but decrease as and when they are proportionately written off. It is added back to Net Profit before Tax and Extraordinary items in Operating Activities.
2. Underwriting Commission:
Underwriting Commission is an expense for the company that is to be paid to the underwriters. It may increase or decrease from one year to another.
In case, Increases- Considered as an expense from financing activities the benefit of which will be enjoyed by business over some period of time. It is regarded as deferred revenue expenditure and accordingly shown as outflow of cash from financing activities, and
Decrease means some part has been written off which is added back to Net Profit before Tax and Extraordinary Items in Operating Activities.
3. Development Expenditure:
These are regarded as capital expenditure for business which leads to creation of new assets and are written off proportionately year after year.
Increase- Regarded as outflow of cash from investing activities and
Decrease- Regarded as writing off of capital expenditure that will be added back to Net Profit before Tax and Extraordinary Items in Operating Activities.
The query asked by you is one of the common doubt of many students like you. In response to your query, we would like you to browse few queries already answered by our experts. As far as treatment of these items is concerned, the same is as follows:
1. Preliminary Expenses:
These are the expenses incurred by the company prior to its incorporation. Such expenses cannot increase during the life of the company but decrease as and when they are proportionately written off. It is added back to Net Profit before Tax and Extraordinary items in Operating Activities.
2. Underwriting Commission:
Underwriting Commission is an expense for the company that is to be paid to the underwriters. It may increase or decrease from one year to another.
In case, Increases- Considered as an expense from financing activities the benefit of which will be enjoyed by business over some period of time. It is regarded as deferred revenue expenditure and accordingly shown as outflow of cash from financing activities, and
Decrease means some part has been written off which is added back to Net Profit before Tax and Extraordinary Items in Operating Activities.
3. Development Expenditure:
These are regarded as capital expenditure for business which leads to creation of new assets and are written off proportionately year after year.
Increase- Regarded as outflow of cash from investing activities and
Decrease- Regarded as writing off of capital expenditure that will be added back to Net Profit before Tax and Extraordinary Items in Operating Activities.