Question

​KamCo, Inc., manufactures​ tents, boots, waterproof hunting suits and assorted other camping equipment and accessories. KamCo has always sold its products to wholesale distributors who in turn sell the merchandise to various sporting goods stores and outdoor outfitters. In March of the current​ year, KamCo began investigating the possibility of opening a specialty clothing and supply store through which it would sell selected products at retail. From March through​ June, KamCo spent​ $4,300 on a market research​ survey, $21,700 in consulting fees to find the best location and​ $25,200 in legal and accounting fees associated with this new line of business. Although KamCo had never run a retail operation​ before, on August​ 1, it opened his doors for business. What is the maximum amount KamCo can deduct in the current year attributable to these​ expenditures?

A.

​$51,200

B.

​$5,117

C.

​$5,000

D.

​$26,000

E.

​$0

Answer 1

Expenses incurred prior to the incorporation of the business are Preliminary Expenses.

Preliminary expenses are treated as Intangible Assets and is shown on the asset side of Balance Sheet under the head Miscelleneous asset.

As per our question the expenses incurred on Market research survey, consulting fees,legal charges, are all in the nature of preliminary expenses since which are also incurred prior to the commencement of the business.

Preliminary expenses are amortised over a certain period, normally it is five years.

We can conclude that, the total amount incurred $51200 will be shown as intangible assets on the balancesheet and it will be amortised as expenses in following years.

Therefore we can conclude that no amount can be attributed as expense n the current year , it is shown as Intangible asset.