RAJ KUMAR (FINANCE MANAGER) (1393 Points)
16 February 2011HELLO FRIENDS, CAN ANYBODY TELL ME MY CLIENT HAS PURCHASED THE CAR ON LOAN.
HE HAS CAPITALISED THE FULL AMOUNT OF CAR IN THE BOOKS AND LOAN HAS SHOWN THE LIABILITY FOR THE FULL AMOUNT (PRINCIPAL AND INTEREST).
IS THIS TREATMENT OK.
BUT HE ASKS ALSO FOR THE DEDUCTION FOR INTEREST IN LOAN IN THE P/L A/C.
PLS. TELL ME WHAT IS THE CORRECT TREATMENT.
I SHALL BE VERY THANKFUL TO YOU.
Rachit
(Analyst)
(913 Points)
Replied 16 February 2011
The treatment given in books is incorrect
Entry that should have been passed is
Car A/c Dr. (Entire Cost of the car - on the Asset side)
To Car Loan A/c.... Cr. (Loan amount taken from bank without interest amount payable )
To Bank A/c..... Cr. (Initial down payment made by your client out of his own funds)
When your client makes payment towards instalments Pass the following entry
Car Loan A/c .... Dr ( loan element / Principal amount repayment in the instalment) (effect on Liability side of the Balance sheet)
Interest on car loan A/c Dr. (Interest element in the instalment) (P/L A/c item )
To Bank A/c .. Cr. (Entire Instalment amount)
CA C.JANANI
(partner)
(270 Points)
Replied 16 February 2011
the interest paid should be traeted as revenue exps and debited to p&l only when due. The treatment of capitalising is wrong
CA. Abhishek K. Pandey
(Manager (Advance))
(901 Points)
Replied 16 February 2011
Car should be capitalised as fixed asset and Loan should be capitalised as Loans (ST or LT, as the case may be). The interest on this looan can't be capitalised, since
1. It can be accounted for only when it occurs, i.e. becomes due.
2. It is a revenue expenditure and hence should be debited to P&L /C each year.
Entries should be as follows:
To Car Loan A/c
To Bank A/c
Interest on Car Loan A/c........Dr.
To Bank A/c
To Interest on Car LOan
Abhishek K. Pandey
RAJ KUMAR
(FINANCE MANAGER)
(1393 Points)
Replied 16 February 2011
HELLO FRIENDS, CAN ANYBODY TELL ME WHETHER INTEREST ON CAR LOAN IS CLAIMED AS EXPENDITURE U/S 36 OR SEC 37.
Rachit
(Analyst)
(913 Points)
Replied 16 February 2011
U/s. 36(1)(iii) of the I. Tax Act, 1961, to be more precise.
tony goel
(nothing)
(21 Points)
Replied 28 June 2016
Hello,can anyone provide some suggestions for my qoestion ......
I purchased a car for 7,70,300 against which I paid 2,00,000 by bank and 6,70,000 by a loan and interest is charged on 6,70,000 and monthly installment of Rs. 11550 is paid. the balance of loan a/c as per bank statement as on 31-03-2016 is 558425.
what treatment should I do in P&L AND BALANCESHHET
including depriciation assuming put to use for 280 days... ???????????????
CAclubindia
