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Accounting Treatment

Niharika Dubey (Article) (48 Points)

08 February 2010

A software is purchased for Rs. 300000 charged to profit & loss account, now it is disallowed by IT dept. because of its capital nature what should be its rectifictaion entry?

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4 Replies

SONUJRT (CA FINAL STUDENT) (337 Points)
Replied 08 February 2010

Hi Niharika...
as per my OPINION
There will be no accounting treatment ...

Bcz, Account is already prepared and the expenditure is disallowed by the I.T Dept. It has no consequence with next year accounting. Tax is paid on Profit as per previous year+Amount disallowed by IT Dept.

However, in next year assesee can claim depreciation on such software (as additional amount of I.Tax Dep). For this purpose assessee is required to maintain a separate record of Depreciation allowable as per Income Tax ACt, 1961 (as we maintain the same usually for all business concern for Income Tax Filling)

Hope you will find the treatment as per your satisfaction.

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(Guest)

The Rectification Entry is as Follows..

You should delete the entry of posting software to P&L. ( Incorrect Entry - Disallowed)

Then you should pass an entry to bring that software into assets..

Group your Software Account under Assets and not indirect expenditure.

As a result your profit will be increased by 300,000 and your assets by 300,000. So, the Balance sheet will get tallied.

As a result your Assets will increase by 300,000 on which you can claim Depreciation.

sachidanand (Executive- Finance & Acctts) (55 Points)
Replied 10 February 2010

Originally posted by : Niharika Dubey
	A software is purchased for Rs. 300000 charged to profit & loss account, now it is disallowed by IT dept. because of its capital nature what should be its rectifictaion entry?

hi niharika you should pass a rectification entry. first of all group software from expenses to asset and then pass entry of asset purchaed.calculate depreciation @ 60% p.a and pass for depreciation entry. if question is of previous yr then pass this entry software a/c...... dr (software cost minusdep of pr. yr ) and expense disallowed by it dept .............cr. and at the time of charging depreciation depreciation a/c............... dr and software a/c................ cr. and then expenses disallowed by it dept a/c ..........dr and depreciation a/c ...........cr as you cannot claim depreciation this yr as you charges whole software to p/l a/c in pr yr but this will gradually reduces your expenses disallowed by it dept. to 0.

SONUJRT (CA FINAL STUDENT) (337 Points)
Replied 10 February 2010

Hi frenz....
I would like to mention that Accounts and Income Tax Assessments are two different aspects.
For assessment purpose, Profit is assessed at higher amount then profit shown in books.

We would not require to change our books as per ASSESSMENT.