23 September 2011
One of the software company(client) has purchased a Computer Server on Finance Lease, and the agreement contains the clause that the Computer will be taken back in case of default in payment, and also the charge is not registered with ROC on the same machinery, now how we should disclose the loan into the Balance Sheet Sch VI format? whether as secured on account of security as machinery itself or as unsecured as the charge is noted with the ROC and also no other security is given to the vendor......
29 September 2011
Sir, first of all said transaction is not covered under sec 125 of companies act as definition of charges states The term charge has not been defined under the Companies Act, 1956. Section 124 states that the expression "Charge" includes a mortgage. However, the language of section 125 of the Act throws light upon the scope of the word charge. The expression "so far as any security on the company's property or undertaking is conferred thereby" makes it clear that a charge is nothing but security of its property by the company in favour of a creditor with the intent of securing his debt. and such transaction is not secured not it will be shown Under Loans and advance as Unsecured Loans. Kindly let me know whether this solution has solved your query. Regards, CS Sumat Singhal
It has been very late to reply from my side, sorry for the same, however as we deal with it in financial statements we capitalise the asset and in the notes to account we give disclosure that the said asset is under the lien of the supplier.
CAclubindia
