Quick reply on electricity company for PCC

secong method as suggested by your teacher is correct.

Second one because

or just simply replace the reduction of old material

by adding it up as it gets included almost like a new material as the old material is already reduced......

Guys a doubt please,

What amount included in "Expenditure Incurred" head. Any cost of Reused Materials (either Current or old cost)? Appreciate if you write with an example for better clarity.

Many thanks

Originally posted by : Bhaskar Unnikrishnan
	Guys a doubt please,   What amount included in "Expenditure Incurred" head. Any cost of Reused Materials (either Current or old cost)? Appreciate if you write with an example for better clarity.   Many thanks

EX-

Suppose A ltd laid a main in 1999 for Rs. 55,00,000. in 2005 the company decided to replace the old main laid in 1999 by a new one of higher capacity which cost Rs. 90,00,000. Current cost of old main is RS.75,00,000. The old main was sold for RS. 1,50,000 and some materials from the old main was reused in constructing new one of Rs. 6,00,000.

Calculation of amount to be capitalised-

Expenditure incurred in constructing new main-  RS. 90,00,000

ADD: Reuse of old material-                                     Rs. 6,00,000

                                                                                     _____________

Total expenditure incurred=                                      Rs. 96,00,000

Less: current cost of old main =                              Rs. 75,00,000

                                                                                      ____________

Amount to be capitalised=                                       RS. 21,00,000

I hope this is Replacement of asset and you would not write off old asset on sale!!!

@ bhaskar i could not understand your doubt properly. but the savings in cost due to reuse of material is capitalised.

Plesae discard the above comment!!!!

Dear Ashish, thank you for the information and got clear picture now...

Hey Ashish / Friends

Appreciate if you can give me a journal entry for the above.

Regards,

Bhaskar

This is a special case of electricity companies. If we take the above example following entries are passed.

1 New Main A/c Dr.          1500000

   Replacement A/c Dr.      7500000

                  To Bank A/c                     9000000

2. New Main A/c Dr.            600000

                   To Replacement A/c          600000

3. Bank A/c Dr.                     150000

            To Replacement A/c     150000

Replacement A/c is just a nominal a/c which is opened to pass these entries. Any carrying balance of the old main is also transferred to this a/c and any balance remaining after these entries is transferred to P&L A/c

Thanks Mate...