Question

what can happen to start-up expenses for a busuness that never becomes an active tradeof busibess

Answer 1

With regard to start up expenses also known as preliminary expenses are usually written off during the working of the entity .ie initially when it is incurred it is capitalised and catogorized as an asset.during the course of business, part of it is written off as expense over the years.Normally it is written off over 5 years.In the case as you said, if the entity is being wound up or not preforming any active business after the incorporation, then the expense shall be borne by the company or the proprietor.since there is no profit arising of business activity ,the expense shall be reduced from the capital account.

When expense incurred .

Preliminary expense a/c. Dr

To. Bank a/c

When a preliminary expense written off

P&L a/c. Dr

To Preliminary expense. a/c

Usually profit of profit and loss account is added with capital and in our case ,since we don't have any income preliminary expense written off would deepen the loss. Hence it has to be reduced from capital.

Capital a/c Dr

To. P&L a/c