CA P KARTHIKA (Chartered Accountant) (715 Points)
29 July 2009I 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????
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 | ||
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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: 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
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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.
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