Any body clarify doubt....

SANKAR KIRAN P (Top Edge of CA & CS) (246 Points)
Replied 29 July 2009

ask why does bank charges come into effect ??? only the cost price of the asset must be capitalised... emi is not considered into account... totally cost +reg fee+ins+interest should be capitalised... so totally asset must be capitalised at Rs.1030000/= ... bank charges will not be capitalised...

Asset DR 1030000

to Bank 1030000

But in narration it must be classified and shown that various expenditure hasbeen made

And bank charges seperate entry must be passed

SANKAR KIRAN P (Top Edge of CA & CS) (246 Points)
Replied 29 July 2009

as u said u ve paid advance to the supplier ... the entry is

supplier DR 150000

To Bank 150000

Once the asset has come to u... and it is no more an advance then

Asset DR 150000

To Supplier 150000

CA Anand BG (Chartered Accountant) (84 Points)
Replied 29 July 2009

Originally posted by :KARTHIKA
"		"

Ratan Deep Saxena (Asstt Manager (Accounts & Finance)) (2998 Points)
Replied 30 July 2009

Correct accounting entry will be

assets Dr 915000

to supplier Account 915000

(Being Asset Purchased)

Cost of Asset 800000+80000+35000 =915000

Interest on loan dr 115000

to Profit & loss Account 115000

(Being Interest on loan charges to profit & loss account)

supplier Dr 765000

to Bank 765000

( being balance amount paid)

CA Anand BG (Chartered Accountant) (84 Points)
Replied 30 July 2009

Originally posted by :KARTHIKA

"

I just want to know the correct accounting entry for capitalisation and accounting of expenses related to purchase of an asset thru loan:
Say for eg:
Cost of asset- 800000; Rgstrn fees- 80000; ins-35000; bank charges-4000; EMI-26000; Int on loan during the loan period-115000; amt already paid to supplier of asset-150000;
How to capitalise asset and how to pass journal entry and pymt to supplier in an single entry?
Tell wat's the entry to be passed????

1. Asset should be capitalised at cost plus all incidental expenses retating to that asset to bring it into ready to use (as per As 12). So Registration Expenses will be capitalised. Insurance premium paid for the first time should be capitalised but from next year it will be debited to P & L A/c. For Bank Charge, you may capitalised it or not.So the J/E will be as below:

Assumption - 1) Bank has also financed Registration Exp & Insurance Exp

Asset A/c ...Dr. (800000+80000+35000) 915000

To Supplier A/c 150000

To Bank Loan A/c 765000

Assumption 2) Bank has financed only Rs.650000 and your client has paid 150000+80000+35000 from his own pocket.

Asset A/c ...Dr. 915000

To Supplier A/c 150000

To Bank A/c 80000+35000=115000

To Bank Loan A/c 650000

When payment is made to supplier:

Supplier A/c ...Dr. 150000

To Bank A/c 150000

2. When loan is taken from bank against an asset, the bank provides a statement seggregating the EMI amount into repayment of loan and interest amount. on the basis of this EMI statement, on the date of payment of EMI you will pass the following J/E

Bank Loan A/c - figure will be taken from EMI statement

Interest A/c - figure will be taken from EMI statement

To Bank A/c Rs 26000

"

CA Anand BG (Chartered Accountant) (84 Points)
Replied 30 July 2009

1. Asset should be capitalized at cost plus all incidental expenses relating to that asset to bring it into ready to use (as per As 12). So Registration Expenses will be capitalized. Insurance premium paid for the first time should be capitalized but from next year it will be debited to P & L A/c. For Bank Charge, you may capitalize it or not. So the J/E will be as below:

Assumption - 1) Bank has also financed Registration Exp & Insurance Exp

Asset A/c ...Dr. (800000+80000+35000) 915000

To Supplier A/c 150000

To Bank Loan A/c 765000

Assumption 2) Bank has financed only Rs.650000 and your client has paid 150000+80000+35000 from his own pocket.

Asset A/c ...Dr. 915000

To Supplier A/c 150000

To Bank A/c 80000+35000=115000

To Bank Loan A/c 650000

When payment is made to supplier:

Supplier A/c ...Dr. 150000

To Bank A/c 150000

2. When loan is taken from bank against an asset, the bank provides a statement seggregating the EMI amount into repayment of loan and interest amount. on the basis of this EMI statement, on the date of payment of EMI you will pass the following J/E

Bank Loan A/c - figure will be taken from EMI statement

Interest A/c - figure will be taken from EMI statement

To Bank A/c Rs 26000

No entery should be passed today for the total interest of Rs. 115000. Alternatively you may credit it to the Interest suspense A/c and Dr. the Interest A/c. But in this case, at the time of EMI payment you will Dr. Interest Suspense A/c instead of Interest A/c

Interest may be capitalised as per AS 16, if it fulfills the condition mentioned in that AS e.g. if your asset is not ready to use.

CA Anand BG (Chartered Accountant) (84 Points)
Replied 30 July 2009

1. Asset should be capitalized at cost plus all incidental expenses relating to that asset to bring it into ready to use (as per As 12). So Registration Expenses will be capitalized. Insurance premium paid for the first time should be capitalized but from next year it will be debited to P & L A/c. For Bank Charge, you may capitalize it or not. So the J/E will be as below:

Assumption - 1) Bank has also financed Registration Exp & Insurance Exp

Asset A/c ...Dr. (800000+80000+35000) 915000

To Supplier A/c 150000

To Bank Loan A/c 765000

Assumption 2) Bank has financed only Rs.650000 and your client has paid 150000+80000+35000 from his own pocket.

Asset A/c ...Dr. 915000

To Supplier A/c 150000

To Bank A/c 80000+35000=115000

To Bank Loan A/c 650000

When payment is made to supplier:

Supplier A/c ...Dr. 150000

To Bank A/c 150000

2. When loan is taken from bank against an asset, the bank provides a statement seggregating the EMI amount into repayment of loan and interest amount. on the basis of this EMI statement, on the date of payment of EMI you will pass the following J/E

Bank Loan A/c - figure will be taken from EMI statement

Interest A/c - figure will be taken from EMI statement

To Bank A/c Rs 26000

No entery should be passed today for the total interest of Rs. 115000. Alternatively you may credit it to the Interest suspense A/c and Dr. the Interest A/c. But in this case, at the time of EMI payment you will Dr. Interest Suspense A/c instead of Interest A/c

Interest may be capitalised as per AS 16, if it fulfills the condition mentioned in that AS e.g. if your asset is not ready to use.