[wolealli]

Explain pre incorporation expense

[ROLCAM]

There are three types of business
Ventures:-
1) Sole trader.
2) Partnership.
3) Incorporated Company or Corporation.

Pre incorporation expenses are:-
All expenses incurred by 1) and 2)
Above that eventually get to be 3).

These expenses become an asset of the incorporated corporation.
It is usually called an Intangible Asset.
It is usually capitalised , but it can
Be amortised in the future years.

[morgaine300]

Once again, depending on where you are. U.S. GAAP would have you immediately expense that type of thing and not capitalize it.

I've not heard the term "pre-incorporation" costs. I assumed it meant startup costs. From what I can find, yes it is.

Therefore, I disagree that it's a place that was 1 or 2 and going to turn into 3. There's an implication that it must be a company that was already formed and been doing business, but has decided to then incorporate. That may not be true at all. And second, that "all expenses" of such companies would be startup costs. I suspect I know what is meant by that, but to someone who doesn't understand it, there's an implication that literally all expenses that were ever incurred by a pre-existing company are startup costs. There's also an implication that's all it means.

wolealli, these costs are those incurred in getting the corporation started, such as legal fees, research that may need done, marketing, testing of a new product, including salaries to people doing this stuff, basically anything necessary to get the company (or new division) up and running, prior to when normal day-to-day operations actually begin. Things like fixed assets can still be capitalized, probably under the assumption they will continue to be used when regular operations begin.

From some searching, I've found references to one Hong Kong site and one UK site, and both claimed these costs have to be expensed.