20 November 2010
Sir, Can i charged emi payment as revenue expenditure in profit & loss a/c . where as i know that the e m i of secured loan treated as booking of fixed asset and other side secured loan decreased and only interest on loan of e m i part charged in profit & loss A/c , depreciation of assets are also charged on Profit & loss a/c . But my Employer did not understand this method , he always says that the e m i also charged in profit & loss a/c because the creditors of this year are near about same figure in that e m i amount, but i have nothing to do about creditors it is clearly profit , and adjusting the profit creates creditors , there is actually no creditors, please advice me urgently.
20 November 2010
The EMI amount includes both interest & principle, so only interest portion should be charged off to P&L. The principle amount reduces the loan amount.
When you have purchased the asset with secured loan,
Both Asset & secured loan are entered in the books of account.
Pass the entry as per repayment schedule every month (out of EMI) towards interest & principle.
Interest grouped under Expenses Principle repayment (reduces the loan)& loan grouped under Secured loans
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