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Sahreholders fund=Equity sh. + Capital reserve - preliminary expenses. Why preliminary expenses are deducted?
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Sahreholders fund=Equity sh. + Capital reserve - preliminary expenses....
Why are preliminary expenses deducted from shareholders' funds?
Preliminary expenses are costs incurred before a company starts its operations, such as legal fees, registration fees, and other expenses related to the formation of the company. These expenses are considered as capital in nature and are amortized over a period of time.
Reasons for deducting preliminary expenses from shareholders' funds:
In conclusion, deducting preliminary expenses from shareholders' funds is a standard accounting practice that helps in accurately representing the financial position of the company and ensuring that only the true equity investment of shareholders is reflected in the financial statements.
Preliminary expenses are costs incurred before a company starts its operations, such as legal fees, registration fees, and other expenses related to the formation of the company. These expenses are considered as capital in nature and are amortized over a period of time.
Reasons for deducting preliminary expenses from shareholders' funds:
- Preliminary expenses are not considered as part of the ongoing operational costs of the business. Hence, they are treated as capital expenses and deducted from shareholders' funds.
- Since preliminary expenses are one-time costs incurred to set up the company, they are not reflective of the company's day-to-day activities or financial performance.
- Deducting preliminary expenses helps in presenting a more accurate picture of the company's financial position to the shareholders and other stakeholders.
- By deducting preliminary expenses from shareholders' funds, the company ensures that only the actual equity investment by shareholders is reflected in the financial statements.
- Amortizing preliminary expenses over time allows the company to spread out the cost incurred in setting up the business, which can help in improving the profitability of the company in the long run.
In conclusion, deducting preliminary expenses from shareholders' funds is a standard accounting practice that helps in accurately representing the financial position of the company and ensuring that only the true equity investment of shareholders is reflected in the financial statements.
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Sahreholders fund=Equity sh. + Capital reserve - preliminary expenses. Why preliminary expenses are deducted?
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Sahreholders fund=Equity sh. + Capital reserve - preliminary expenses. Why preliminary expenses are deducted? for Commerce 2024 is part of Commerce preparation. The Question and answers have been prepared according to the Commerce exam syllabus. Information about Sahreholders fund=Equity sh. + Capital reserve - preliminary expenses. Why preliminary expenses are deducted? covers all topics & solutions for Commerce 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Sahreholders fund=Equity sh. + Capital reserve - preliminary expenses. Why preliminary expenses are deducted?.
Sahreholders fund=Equity sh. + Capital reserve - preliminary expenses. Why preliminary expenses are deducted? for Commerce 2024 is part of Commerce preparation. The Question and answers have been prepared according to the Commerce exam syllabus. Information about Sahreholders fund=Equity sh. + Capital reserve - preliminary expenses. Why preliminary expenses are deducted? covers all topics & solutions for Commerce 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Sahreholders fund=Equity sh. + Capital reserve - preliminary expenses. Why preliminary expenses are deducted?.
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