Accounting treatment

This query is : Open

Querist : Anonymous

Querist : Anonymous (Querist)

03 July 2015 Hi,

I want to know the accounting treatment for the following issue:

A manufacturer (company) has outsourced work to a job worker. The job worker has purchased a machinery and shown in the books as a fixed asset and claims depreciation. The manufacturer reimburses the cost of the machinery incurred by the job worker in Equal Monthly Installments. Further the manufacturer doesn't want this amount to be shown as a loan installment. Now should the EMIs be reducing the value of the fixed asset in the books of the job worker? But then at some point the value of the Fixed Asset will turn negative, since the asset is being depreciated. What should be the Accounting treatment for this?

Thanks

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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03 July 2015 Show it as part of job work income.

Querist : Anonymous

Querist : Anonymous (Querist)

03 July 2015 Thank you for replying sir, but the reimbursement is towards capital expenditure, so can we treat is as a revenue income? Besides issuing the invoices for the job work done will be a problem in case it is treated as a job work income.

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CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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03 July 2015 It is a payment to you for utilizing the asset for job work. Alternatively don't claim depreciation and adjust the payment against the asset.

Querist : Anonymous

Querist : Anonymous (Querist)

03 July 2015 Thank you for answering :)