21 February 2010
1. Trade discount will not be accounted. 2. Cash discount has to be treated, in my opinion, as a revenue receipt only, as it is not directly related to the purchase of the asset but for settlement of the dues in time.
In the light of the above, there is no special treatment required for this in the Block of assets.
But I have following doubts. 1. Since the cost incurred by us is only the amount paid, wouldn't the depreciation taken on the value of the fixed asset be excess by the amount calculated on the discount? 2. IF yes whether depreciation of last year need to be reversed? 3. But AS -10 states that cost of fixed asset may undergo changes due to price fluctuation, foreign exchange,discount etc. So what should I do?
"9. Components of Cost 9.1 The cost of an item of fixed asset comprises its purchase price, including import duties and other non-refundable taxes or levies and any directly attributable cost of bringing the asset to its working condition for its intended use; any trade discounts and rebates are deducted in arriving at the purchase price.................... The cost of a fixed asset may undergo changes subsequent to its acquisition or construction on account of exchange fluctuations, price adjustments, changes in duties or similar factors." First ascertain the nature of Discount. The Standard specifically talks about Trade discount and Price adjustments and not Cash discount. Though the ultimate cost is lesser, the reduction if given as a cash discount it has to be attributed to timely payment only and should not be reduced from cost. If the Vendor reduces the price at the time of purchase or reduces it subsequently by giving a credit note without any reference to or in relation to the payment, these can be reduced from the Cost. In the light of the foregoing, there is no need for any adjustment in Depreciation, if the Discount is in the nature of Cash Discount. If it is in the nature of Trade discount or Price adjustment, the cost has to be reduced and the effect of depreciation has to be given from inception. If you have claimed excess depreciation in the earlier years it has to be adjusted now.
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