Full & Final settlement

This query is : Resolved

CHANDRASEKHAR REDDY (Querist)
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22 October 2010 Our (A) company purchased land in 2006 from X for 50lakhs, payment has been made by Y to X on behalf A on mutual understanding of joint venture development of land, but not so good of development and A has been decided to pay the full & final settelment to Y of Rs. 75 lakhs. Actual cost of 50 lakhs alredy shown in books Debit to Land and Credit to Y 50lakhs. my quiry is how we need to treat remaining 25lakhs which not effecting with any statutory s. In agreement mentioned that 25lakhs as compensation.

plese help me to account since i have already released payment as PDC

CA Shiv

CA Shiv (Expert)
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22 October 2010 can pass one entry like:

Y dr. 50 lacs
Land dr. 25
TO BANK 75

OR

PASS SEPARATE ENTRY

SIMILAR LIKE PURCHASE OF LAND
LAND TO Y 25 LACS
AND

Y TO BANK 75 LACS

CHANDRASEKHAR REDDY

CHANDRASEKHAR REDDY (Querist)
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24 November 2010 but this is not a land purchase we had paid as compensation amount for utilisation of funds for 4years how come to be added to Land, my view it should be shown as a indirect expenses, is it correct

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CHANDRASEKHAR REDDY

CHANDRASEKHAR REDDY (Querist)
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29 November 2010 any one can solve this doubt

Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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25 July 2024 Based on the information provided, it appears that the transaction involves a settlement payment of Rs. 75 lakhs to Y, where Rs. 50 lakhs has already been accounted for in your books as the cost of land purchased in 2006. Now, you need to account for the remaining Rs. 25 lakhs, which is mentioned as compensation in the agreement.

Here’s how you can account for this transaction:

1. **Accounting Treatment:**
- Debit: Land (Increase in cost of land due to settlement) - Rs. 25 lakhs
- Credit: Bank Account (Payment made through PDC) - Rs. 25 lakhs

2. **Explanation:**
- Since the Rs. 50 lakhs was already accounted for in your books as the cost of land purchased, the additional Rs. 25 lakhs will increase the cost of the land in your books.
- Debiting the Land account increases the asset value to reflect the settlement amount.
- Crediting the Bank account reflects the payment made through post-dated cheques (PDCs).

3. **Documentation:**
- Ensure that you have proper documentation supporting the settlement agreement and the payment made.
- Keep records of the PDCs issued and any correspondence related to the settlement.

4. **Financial Statements:**
- Reflect these transactions in your financial statements appropriately, ensuring compliance with accounting standards and disclosure requirements.

5. **Consultation:**
- If there are specific legal or tax implications related to this settlement, it may be advisable to consult with a professional accountant or legal advisor to ensure proper treatment.

By following these steps, you can effectively account for the remaining Rs. 25 lakhs in your books as part of the full and final settlement with Y, while maintaining accurate financial records for your company.