Provision of expenses
This query is : Resolved
11 June 2009
I am on an audit and facing following problem
For eg. Client made a provision for telephone expenses of march,08 of Rs 5,00,000 and closed its book of accounts.
In april it was discovered that expenses for march is only Rs 4,50,000.
So he reversed the balance Rs 50,000 and credited expenses account i.e, he passed following entry:
Provision for expense a/c Dr. 50,000
To Telephone Expense 50,000
I know this entry is wrong and it shall be taken to other income.. can you help me by providing me the relevant provision of company law, accounting standard and income tax for the same, to prove my point.
For eg. Client made a provision for telephone expenses of march,08 of Rs 5,00,000 and closed its book of accounts.
In april it was discovered that expenses for march is only Rs 4,50,000.
So he reversed the balance Rs 50,000 and credited expenses account i.e, he passed following entry:
Provision for expense a/c Dr. 50,000
To Telephone Expense 50,000
I know this entry is wrong and it shall be taken to other income.. can you help me by providing me the relevant provision of company law, accounting standard and income tax for the same, to prove my point.
12 June 2009
Accounting Standard 29 - Provisions, Contingent Lia & Contingent Assets defines Provision as " A Provision is a Liability which by using a substantial degree of estimation " in this case the provision should have been made on various heads like telephone, electricity etc based on past trends. a marginal surplus deficit does not constitute an error and the same can be adjusted by taking the surplus provison in the respective head of expense in the next year.
This would not constitute an Prior period Item Under AS 5 unless an mathematical error or error on application of accounting policy is detected.
This would not constitute an Prior period Item Under AS 5 unless an mathematical error or error on application of accounting policy is detected.
12 June 2009
Wat problem is there. It is correct
12 June 2009
I agree with Ganesh. The entry passed by the company is not wrong. either donot pass this entry and make provision for 2009 by deducting 50000
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