in my client case(Firm) car was stolen and insurance claim of 100000/- was received from insurance company . what is accounting treatment. according to me this should not be credited to profit and loss account b,coz due to this tax liability will increase and on the other hand it is cash receipt . i want to reduce block as per I.T. act at which amount i should reduce my block. my accountant friend has found out its WDV of 68000 and against that 100000/- was received kindly suggest accounting treatment. My view is that not to give effect in profit and loss account , directly reduce or give credit to motor car account amount received from insurance company.
5 Replies
Harshal Fifadra
(Chartered Accountant)
(1489 Points)
Replied 16 September 2011
the correct entry would be Bank a/c Dr.
to claim a/c
this would be transferred to profit and loss a/c
in terms of taxability the receipt of claim is not at all an income as per section 2(24) of IT act . 1961 . It is just a compensation in the course of business .
Namita Gupta
(job)
(117 Points)
Replied 16 September 2011
correct entry should be : bank a/c dr 100000
to motor car a/c 68000
to profit n loss a/c 32000
acc to me amount should be credited to p&l because if u receive Rs 65000 instead of 100000 from insurance co then u debited the loss of 3000 (68000 -65000) to p&l so excess amount should be transfered to p&l (only if the car belong to firm n not personal)
HITESH
(CA STUDENT)
(50 Points)
Replied 16 September 2011
Hi Pratik,
In this case your profit is 32000. and its liable to pay tax as well. this will not be applicable if your fixed assets block in Vehicle are not exist. because as per it act, this is short term capital gain. and your tax liability would be i think 10 or 20 %
Bhaskar Unnikrishnan CPA CMA
(Accounts / Administration)
(414 Points)
Replied 17 September 2011
Dear Ratik,
I believe the tax liability will be depends on the gain / loss on transaction for your case. For eg: if the book value was Rs. 68,000 and you received insurance of Rs. 100,000, then you will have to pay Tax on Rs. 32,000 gain. Moreover, you have to write-off the asset from balance sheet. The entry can be:
Cash/Bank A/c Dr Rs 100,000
To Gain(Transfer to P&L A/c) Rs. 32,000
To Car Rs. 68,000
Regards,
Bahskar
Ateeq
(CA - Final)
(218 Points)
Replied 20 September 2011
Dear Pratik,
The accounting treatment will be : -
Bank A/c Dr. 100000
To Motor Car A/c. 68000
To Profit & Loss A/c. 32000.
The profit will taxable as per section 45 (1A) of the income tax act, under the head capital gains.
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