Accounting treatment??

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Dear all,

Please let me know what is the accounting treatment of following transaction.

ABC Co. Purchased a Vehicle (Car) of Rs.30,00,000/-

Loan from Bank is about 20,00,000/-

Balance Rs.10,00,000/-

Margin Money is Rs.100,000/-

R. Tax etc. Rs.250000/-

Total Payment to Dealer=Rs.13,50,000/-

Cash Discount given by dealer=Rs.50,000/-

Net Payment=Rs.13,00,000/-

Replies (8)

Below entry needs to be psoted:

 

 

Vehicle A/C  Dr 3200000       3000000+250000-50000
To- Bank Loan     -2000000        
to- Bank       -1200000   1350000-50000-100000

Mr.Giridhar, can the Road Tax be accounted as prepaid and the value of the car as asset instead of adding the tax to the cost, then yearly reduce the prepaid Road Tax and book as expense, because road tax is a recurring exp.not one time.

Dear Giridhar, if the invoice bill is of car is Rs.30,00,000/- and road Tax Receipt is Rs.250000/-. Then i think Car should be booked of amount Rs.3250000/- Instead of Rs.32,00,000/-. And further there is cash discount of Rs.50000/- should be booked in Discount Received A/c. I think i m right here.

Let me know, If i m wrong please...

Thanks in advance.. 

Mr frank, I dont think that road tax is an recurring expense, unlike insurance. It's a one-time cost and is incurred in connectin with the purchase of the car, hence it should be capitalised alongwith cost of the car.

Mr Sanjay, I have considered the road tax & debited to the cost of the car.  however as the cash discount received is not revenue in nature as it is given in connection with an fixed asset hence it is reduced from the cost of the car and should not be shown as an income.

But dear Giridhar, why should i reduced my car cost, as the invoice bill not shown any discount. This discount has come to know after receiving the invoice bill.

Please correct me if i m wrong...

Thanks..

Mr Sanjay, please refer AS10 Accounting for fixed assets. In that it is given that any trade discount should be deducted from teh cost of the fixed asset, while arriving at teh purchase value.  As per your statement teh discount is not shown in the invoice.  So as it is an trade discount which shud be deducted from teh cost of the fixed asset.  Hope this makes clear.

Thanks Mr. Giridhar..yes

Dear All,

 

AS-10 says when an asset is purchased all the amount incured to bring the asset in wroking condition or put to use should b capitalised.

So the road tax paid shold be capitalised not prepaid expenses.

Incase let us assume u want to account it as prepaid expenses can you tell me for how many years will you account it for??


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