Prior period expenditure
This query is : Resolved
19 July 2010
How to show Prior period expenses for presentation under shceduel VI
wether it should be debited to P & L Appropriation a/c or should be disclosed in Notes to a/cs
And while disclosing in notes to a/cs wether the same amount would be debited in P & L or only it should be shown in notes to a/cs
or
debit P & L a/c and while preparing computation of income under income tax act it would be disallowed.
wether it should be debited to P & L Appropriation a/c or should be disclosed in Notes to a/cs
And while disclosing in notes to a/cs wether the same amount would be debited in P & L or only it should be shown in notes to a/cs
or
debit P & L a/c and while preparing computation of income under income tax act it would be disallowed.
19 July 2010
Dr into P&L and show in notes to accounts
19 July 2010
Wether any disclosure to be made in P & L A/c. I mean seprate Head for Prior Period expenses.
And wether this expenses will be disallowed under income tax ?
Also wether Prepaid expenses should be specifically mentioned in notes to a/cs
And wether this expenses will be disallowed under income tax ?
Also wether Prepaid expenses should be specifically mentioned in notes to a/cs
19 July 2010
Plz help me its urgent
10 August 2024
**Prior Period Expenses and Their Treatment**
### **1. Presentation Under Schedule VI (Companies Act, 1956)**
**A. **Disclosure of Prior Period Expenses:**
- **In the Profit & Loss Account:** Prior period expenses should not be debited to the Profit & Loss Account (P&L) for the current year. Instead, they should be disclosed separately in the notes to accounts.
- **In Notes to Accounts:** Disclose prior period expenses as a separate line item in the Notes to Accounts. For example, you can include a note stating "Prior period expenses" under the section where you present significant accounting policies or notes on expenses.
**B. **Treatment and Disclosures:**
- **Not Debited to P&L:** Prior period expenses should not be debited to the current year's Profit & Loss Account. Instead, the correct approach is to show them as a separate item in the notes to the accounts.
- **Separate Head in Notes:** Present the prior period expenses separately in the Notes to Accounts. This ensures clarity and transparency.
### **2. Income Tax Act Treatment**
**A. **Disallowance of Prior Period Expenses:**
- **Disallowed in Computation of Income:** Prior period expenses are generally not allowed as a deduction under the Income Tax Act. They are considered expenses of a previous year and should not be deducted from the current year's taxable income.
- **Adjustment:** Ensure these expenses are not included in the Profit & Loss Account for the current year when calculating taxable income.
**B. **Disclosure in Income Tax Return:**
- **Adjustment in Computation:** When preparing the computation of income, prior period expenses should be adjusted by adding them back to the taxable income.
### **3. Prepaid Expenses**
**A. **Presentation in Financial Statements:**
- **In the Balance Sheet:** Prepaid expenses should be presented under the current assets section of the balance sheet.
- **In Notes to Accounts:** While prepaid expenses are generally shown under current assets, specific disclosure in the notes to accounts is not mandatory unless they are significant or affect the understanding of the financial statements. However, it's good practice to disclose them to provide clarity.
**B. **Disclosure Requirements:**
- **Details in Notes:** If prepaid expenses are significant, provide details such as the nature and amount of the prepaid expenses in the notes to accounts to enhance transparency.
### **Summary**
1. **Prior Period Expenses:**
- **Presentation:** Show separately in Notes to Accounts, not debited to the current year's P&L.
- **Income Tax:** Add back to taxable income; generally disallowed as a deduction.
2. **Prepaid Expenses:**
- **Balance Sheet:** Present under current assets.
- **Notes to Accounts:** Disclose if significant for clarity.
### **Example Note for Prior Period Expenses:**
```markdown
**Note X: Prior Period Expenses**
Prior period expenses amounting to ₹X,XXX/- have been incurred during the current year, which relate to expenses of previous financial years. These expenses have been disclosed separately in the Notes to Accounts to ensure transparency. These expenses are not included in the current year's Profit & Loss Account.
```
### **References:**
- **Schedule VI (Companies Act, 1956):** Guidelines for presentation and disclosure.
- **Income Tax Act, 1961:** Rules regarding the treatment of prior period expenses.
- **Accounting Standards:** For detailed guidelines on presentation and disclosures.
For specific scenarios or complex cases, consulting with a chartered accountant or tax advisor is advisable to ensure compliance with accounting and tax regulations.
### **1. Presentation Under Schedule VI (Companies Act, 1956)**
**A. **Disclosure of Prior Period Expenses:**
- **In the Profit & Loss Account:** Prior period expenses should not be debited to the Profit & Loss Account (P&L) for the current year. Instead, they should be disclosed separately in the notes to accounts.
- **In Notes to Accounts:** Disclose prior period expenses as a separate line item in the Notes to Accounts. For example, you can include a note stating "Prior period expenses" under the section where you present significant accounting policies or notes on expenses.
**B. **Treatment and Disclosures:**
- **Not Debited to P&L:** Prior period expenses should not be debited to the current year's Profit & Loss Account. Instead, the correct approach is to show them as a separate item in the notes to the accounts.
- **Separate Head in Notes:** Present the prior period expenses separately in the Notes to Accounts. This ensures clarity and transparency.
### **2. Income Tax Act Treatment**
**A. **Disallowance of Prior Period Expenses:**
- **Disallowed in Computation of Income:** Prior period expenses are generally not allowed as a deduction under the Income Tax Act. They are considered expenses of a previous year and should not be deducted from the current year's taxable income.
- **Adjustment:** Ensure these expenses are not included in the Profit & Loss Account for the current year when calculating taxable income.
**B. **Disclosure in Income Tax Return:**
- **Adjustment in Computation:** When preparing the computation of income, prior period expenses should be adjusted by adding them back to the taxable income.
### **3. Prepaid Expenses**
**A. **Presentation in Financial Statements:**
- **In the Balance Sheet:** Prepaid expenses should be presented under the current assets section of the balance sheet.
- **In Notes to Accounts:** While prepaid expenses are generally shown under current assets, specific disclosure in the notes to accounts is not mandatory unless they are significant or affect the understanding of the financial statements. However, it's good practice to disclose them to provide clarity.
**B. **Disclosure Requirements:**
- **Details in Notes:** If prepaid expenses are significant, provide details such as the nature and amount of the prepaid expenses in the notes to accounts to enhance transparency.
### **Summary**
1. **Prior Period Expenses:**
- **Presentation:** Show separately in Notes to Accounts, not debited to the current year's P&L.
- **Income Tax:** Add back to taxable income; generally disallowed as a deduction.
2. **Prepaid Expenses:**
- **Balance Sheet:** Present under current assets.
- **Notes to Accounts:** Disclose if significant for clarity.
### **Example Note for Prior Period Expenses:**
```markdown
**Note X: Prior Period Expenses**
Prior period expenses amounting to ₹X,XXX/- have been incurred during the current year, which relate to expenses of previous financial years. These expenses have been disclosed separately in the Notes to Accounts to ensure transparency. These expenses are not included in the current year's Profit & Loss Account.
```
### **References:**
- **Schedule VI (Companies Act, 1956):** Guidelines for presentation and disclosure.
- **Income Tax Act, 1961:** Rules regarding the treatment of prior period expenses.
- **Accounting Standards:** For detailed guidelines on presentation and disclosures.
For specific scenarios or complex cases, consulting with a chartered accountant or tax advisor is advisable to ensure compliance with accounting and tax regulations.
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