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ACCOUNTING TREATMENT OF ASSET-A LOGICAL QUERY!TRY IT!!I

Ankit Golash (Chartered Accountant-Employee) (40 Points)

30 November 2009

HEY ME ANKIT GOLASH(AIR 21 CA PCC)

MY QUESTION:

MR A CONTACTS A DEALER TO PURCHASE 100 SIMILAR MOBILE PHONES FOR BUSINESS USE.MARKET PRICE AT THAT TIME RS 30,000/- PER MOBILE.MR A NEGOTIATED WITH DEALER TO LOWER THE RATE.HE ASKED THE DEALER TO PRICE RS. 26,000 PER MOBILE.

AGREEMENT SETTLED AS:96 MOBILE PHONES AT RS 30,000/- AND 4 FREE OF COST!!!

QUESTION:WHAT IS THE ACCOUNTING TREATMENT IN BOOKS OF MR A?[JUSTIFY UR ANSWER WITH RELEVANT AS/IFRS ALONG WITH RELEVANT STATAMENT OF THE SAME]

BE HURRY!!!I NEED THE ANSWER TO FINANLISE THE INTERNAL AUDIT!!!

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11 Replies

GAURAV BEHL (CA-FINAL ) (228 Points)
Replied 30 November 2009

first of all you have to consider the business of Mr A . i.e. either he deals in mobiles or something else.

case1: if mr. a deals in mobiles

the price negotiated by mr. A i.e. rs 4000(rs 30,000- rs 26000) is in the nature of trade discount and needs no special accounting treatment.it would just increase the per unit price of mobile.

further as per as-2 the carrying amount of inventory should be cost or nrv whichever is less.

here cost =Rs24,000 and nrv is Rs 30,000 (market value). so the mobile would be valued at rs 24,000.

entry

purchases ... dr 24000

to dealer/cash/bank

case2: if mr A does not deals in mobiles

in this case it would appear as an asset in the t/b of mr. A at cost. i.e. Rs 24,000.

entry mobile ... dr. 24000

to dealer/cash/bank

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CA Rahul Jain (CA) (1162 Points)
Replied 30 November 2009

there is no need for special treatment.

accounting entry shall be......

Mobiles(Fixed Asset) A/c. 30000*96

to Cash/Bank/Supplier A/c. 30000*96

MITU.... (ARTICLE Assistant) (210 Points)
Replied 30 November 2009

ACCOUNTING TREATMENT IS SIMPLE

MOBILE(ASSET) A/C DR (96*30000) 2880000

TO bANK/ CREDITOR A/C 2880000

IF U WANT TO KNOW PRICE PER MOBILE IT IS AS BELOW

96*30000=2880000

U GOT 4 FREE OF COST

THERFOR PRICE PER MOBILE INCLUDING 4 FREE MOBILE

2880000/100=28800

Sunali (Learner) (1317 Points)
Replied 30 November 2009

Agree with Gaurav..since the mobiles have been purchased for buisness purpose, the free mobiles will be considered as trade discount, however the value of each mobile will be (30000*96/100) i.e. 28800/- i.e. the cost since lower than nrv as per AS-2.

(Guest)

Mr.Amkit, are you conducting any exam here?

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CA. SUDHARSAN K G (Chartered Accountant) (472 Points)
Replied 30 November 2009

Mr. A,
Purchases Mobile For Business Use, So It Comes Under Fixed Assets

In The Given Case,
		Nos	Rs. Per Unit	Total
	Purchases	96	30000	2880000
	Received at Free of Cost	4
	TOTAL	100		2880000

	Roughly Per Unit Cost Comes to		28800

Accounting Treatment

It is general to reduce the cost to the extent discount allowed. In this Case, it is in the nature of BUSINESS USE not for SALE, the Entry will be

	Mobiles	2880000
	To Bank		2880000

Ankit Golash (Chartered Accountant-Employee) (40 Points)
Replied 01 December 2009

Originally posted by :GAURAV BEHL

first of all you have to consider the business of Mr A . i.e. either he deals in mobiles or something else.
case1: if mr. a deals in mobiles
the price negotiated by mr. A i.e. rs 4000(rs 30,000- rs 26000) is in the nature of trade discount and needs no special accounting treatment.it would just increase the per unit price of mobile.
further as per as-2 the carrying amount of inventory should be cost or nrv whichever is less.
here cost =Rs24,000 and nrv is Rs 30,000 (market value). so the mobile would be valued at rs 24,000.
entry
purchases ... dr         24000
       to dealer/cash/bank
case2: if mr A does not deals in mobiles
in this case it would appear as an asset in the t/b of mr. A at cost. i.e. Rs 24,000.

entry            mobile        ... dr.        24000
                             to dealer/cash/bank

ANKIT GOLASH

HOW U COMPUTED RS 24000??SIR I NEED TO JUSTIFY MY ACCOUNTING TREATMENT TO MY CHARTERED!!!PLS ANSWER AS PER RELEVENT AS!!ITS NOT INVENTORY,SO DONT USE AS-2!!

THANKS TO GAURAV SUNALI RAHUL,SATYANARAYAN!!!

PLS JUSTIFY UR ANSWER!!!

CA PRAVEEN KESHAV (CHARTERED ACCOUNTANT) (331 Points)
Replied 01 December 2009

yaa agree with gaurav

Sunali (Learner) (1317 Points)
Replied 01 December 2009

Originally posted by :ankit
"	Originally posted by :GAURAV BEHL " first of all you have to consider the business of Mr A . i.e. either he deals in mobiles or something else. case1: if mr. a deals in mobiles the price negotiated by mr. A i.e. rs 4000(rs 30,000- rs 26000) is in the nature of trade discount and needs no special accounting treatment.it would just increase the per unit price of mobile. further as per as-2 the carrying amount of inventory should be cost or nrv whichever is less. here cost =Rs24,000 and nrv is Rs 30,000 (market value). so the mobile would be valued at rs 24,000. entry purchases ... dr 24000 to dealer/cash/bank case2: if mr A does not deals in mobiles in this case it would appear as an asset in the t/b of mr. A at cost. i.e. Rs 24,000. entry mobile ... dr. 24000 to dealer/cash/bank ANKIT GOLASH HOW U COMPUTED RS 24000??SIR I NEED TO JUSTIFY MY ACCOUNTING TREATMENT TO MY CHARTERED!!!PLS ANSWER AS PER RELEVENT AS!!ITS NOT INVENTORY,SO DONT USE AS-2!! THANKS TO GAURAV SUNALI RAHUL,SATYANARAYAN!!! PLS JUSTIFY UR ANSWER!!! "	"

Justification..!!!...its quite clear Ankit..!!..the cost will be Rs. 28800/-, per mobile set i.e. Rs. 2880000/- for the total inventory, as I calculated above,...following the accounting standard, AS-2; go through the same if still any confusion lies..

Sunali (Learner) (1317 Points)
Replied 01 December 2009

Originally posted by :ankit
"	HEY ME ANKIT GOLASH(AIR 21 CA PCC) MY QUESTION: MR A CONTACTS A DEALER TO PURCHASE 100 SIMILAR MOBILE PHONES FOR BUSINESS USE.MARKET PRICE AT THAT TIME RS 30,000/- PER MOBILE.MR A NEGOTIATED WITH DEALER TO LOWER THE RATE.HE ASKED THE DEALER TO PRICE RS. 26,000 PER MOBILE. AGREEMENT SETTLED AS:96 MOBILE PHONES AT RS 30,000/- AND 4 FREE OF COST!!! QUESTION:WHAT IS THE ACCOUNTING TREATMENT IN BOOKS OF MR A?[JUSTIFY UR ANSWER WITH RELEVANT AS/IFRS ALONG WITH RELEVANT STATAMENT OF THE SAME] BE HURRY!!!I NEED THE ANSWER TO FINANLISE THE INTERNAL AUDIT!!!	"

not for business use..as U said in PM, the treatment will be..

the mobile phones will be considered to fall under fixed assets and will be valued as per AS -10, Accounting for Fixed Assets, which says

"The cost of a fixed asset should comprise its purchase price and any attributable cost of bringing the asset to its working condition for its intended use."

Hence, the value will be the purchase price i.e. Rs. 2880000/- (30000*96). The free sets won't require any extra treatment, since the discount will only reduce the cost per set as per AS-10.

I hope its clear now.

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Jag Bhushan Sharma (Faculty in a B-School) (633 Points)
Replied 04 December 2009

I agree to what has been stated by Ms. Sunali. Mobile phones are Fixed Assets and all 100 sets will be recorded atRs.2880000 and will be depreciated as per AS 6.