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Accounting treatment of foc voucher

Alok Chandra (Manager) (38 Points)

06 June 2016

My company purchases Fixed asset(Heavy Vehicles) from "X Ltd." against which we recieve FOC vouched worth Rs. 5 lacs which can be redeemed against spare parts purchase from its agent "Y Ltd." We have been purchasing spare parts from "Y Ltd" and place our claim the FOC voucher. Now "Y Ltd." places the same to "X Ltd" and when it recieves the claim from "X Ltd." they pass the same to us by an accounting entry of crediting the same to our account in their ledger. Now my question is how to treat the same in books of accounts:- Should we deduct the claim amount from our repair and maintenance cost OR Should we deduct the amount from the cost of asset purchased as discount recieved on purchase of Fixed asset.

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10 Replies

Rakesh Revalia (Accountant) (69 Points)
Replied 06 June 2016

Dear Alok,

you should claim it and adjust from your repair & maintenance bills

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Alok Chandra (Manager) (38 Points)
Replied 06 June 2016

Thank for the suggestion Sir.. But can I not claim it as a deduction from the cost of asset as it is of the nature of discount directly relatable to purchase.
On doing this I could have deffered the income which as of now would be taxable this year if it is adjusted with repair and maintainance bills.

Alok Chandra (Manager) (38 Points)
Replied 06 June 2016

Shubham Gupta (Business Consultants) (2077 Points)
Replied 06 June 2016

Hello,

I think it will be more appropriate to reduce fixed asset cost. with voucher amount

Alok Chandra (Manager) (38 Points)
Replied 06 June 2016

Thanks Sir... It would be great help if i get some thing in support of this because the amout 5 lacs mentioned in the example actually runs in crores cumalatively. If the AO disallows it afterwards it would pose a big prob. I went through AS 10 throughly but was not exactly sure about how to interpret any clause in support of my decision to reduce the cost of fixed asset by that amount. I want to treat this as you suggested beacuse it would defer a big tax amount.

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C.A. Sandeep Wawhal (CA, PGDFM, BCom) (1831 Points)
Replied 06 June 2016

It is not directly related to purchase of fixed asset. Because it is contingent upon future event that you have to buy some spare parts from Y Ltd. Hence, it is appropriate to adjust to Repairs and Maintainance.

CA Rohit Jain (Practice) (1865 Points)
Replied 06 June 2016

You should adjust it against repairs and maintenance... reducing fixed asset won't be an appropriate treatment

Rakesh Revalia (Accountant) (69 Points)
Replied 07 June 2016

YOU ARE SAYING RIGHT

Alok Chandra (Manager) (38 Points)
Replied 07 June 2016

Now if i argue it this way that since we had paid for the Vehicals in advance so any discount provided by them could be routed only through purchase of spare from their agent since we have running business with their agent Y Ltd.. The discount of Rs. 5 Lac per vehicle was triggered on purchase of the Fixed asset. So i am adjusting the same therein. Also they are billing the spares at normal rate; if it was free of cost then we had to record the same at nominal vale and also consume the same at nominal rate at which it was recorded.
I am arguing that it is just the spare part legder and spare supplier agent who is used to pass on the discount which arose on purchase of fixed asset.

Would the above arguement hold good?