There may be so many expenditures in a business firm which may be related to more than one financial year. Therefore, these expenditures are capitalized and are not written off in a single financial year. These expenses are written off in several financial years according to the nature of expenses or as per law or as per the decision of the management. But there should be a solid logic for allocation of these expenditures in different financial years. If these expenses are not written off properly then the direct effect can be seen on the actual profitability of the company. Following are the examples miscellaneous expenses which are shown in assets side of balance sheet and carried forward:-
- Preliminary expenses.
- Expenses including commission on underwriting or subscription of shares of debentures.
- Discount allowed on the issue of shares or debentures.
- Interest paid out of capital during construction.
- Major repair expenses on plant and machinery.
- Research & development expenses.
- Other extra-ordinary expenses, which are related to more than one financial year.
Treatment of Miscellaneous Expenditures in Final Accounts
The written off portion of these expenses is shown in expenditure side of profit and loss account and the balance amount is shown in asset side of balance sheet.
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