Transfer of Preliminary Expenses in Amalgamation

Preliminary expenses are expenses incurred before the incorporation of a company or before the commencement of its business operations. These expenses are incurred for the purpose of setting up the company or for raising capital. In the case of amalgamation, the company may incur various expenses like legal fees, valuation fees, etc. that are necessary for the amalgamation to take place. These expenses are known as preliminary expenses.

Transfer of Preliminary Expenses

When a company undergoes amalgamation, it may transfer its preliminary expenses to the amalgamated company. The transfer of preliminary expenses is done to ensure that the amalgamated company bears the costs of the amalgamation.

The transfer of preliminary expenses is done in the following manner:

1. Calculation of Preliminary Expenses: The company calculates its preliminary expenses and records them in its books.

2. Transfer of Preliminary Expenses: The company transfers its preliminary expenses to the amalgamated company at the time of amalgamation. The transfer is made by debiting the preliminary expenses account and crediting the amalgamated company's account.

3. Amortization of Preliminary Expenses: The amalgamated company can amortize the preliminary expenses over a period of time. The amortization is done by charging the expense to the profit and loss account over the useful life of the expense.

Benefits of Transfer of Preliminary Expenses

The transfer of preliminary expenses has the following benefits:

1. Cost Allocation: The costs of the amalgamation are allocated to the amalgamated company, ensuring that it bears the costs of the amalgamation.

2. Reduction in Expenses: The transfer of preliminary expenses helps in reducing the expenses of the amalgamating company.

3. Tax Benefits: The amalgamated company can claim tax benefits on the preliminary expenses that are amortized over a period of time.

Conclusion

In conclusion, the transfer of preliminary expenses is an important aspect of amalgamation. It helps in allocating the costs of the amalgamation to the amalgamated company and reduces the expenses of the amalgamating company. The amortization of preliminary expenses also provides tax benefits to the amalgamated company.