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Rectification entry

Souvik Kumar Ghosh (CA Final) (1368 Points)

24 December 2011

Can a rectification entry be made for a mistake of previous year which involves significant amount?

Regards

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5 Replies

sriram (CA Final) (203 Points)
Replied 24 December 2011

Yes Provided you mention the same in Notes to accounts of the year in which the rectification was carried on.

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B.Vithal (Audit assistant) (30 Points)
Replied 29 December 2011

Dear Souvik,

Rectification entries can be passed for any previous financial year provided that you can substantiate it. Also it has to be mentioned in the Notes on Accounts supporting your Financial Statements for the year in which rectification entries are passed.

Regards and warm wishes for the coming new year.

Vithal.

shivam gupta (Student) (142 Points)
Replied 29 December 2011

As per AS 5

. The nature and amount of prior period items should be separately disclosed in the statement of profit and loss in a manner that their impact on the current profit or loss can be perceived.

Prior period items means income or expenses arise in current peroid due to any errors(Fraud also included in errors) , omission , in the preparation of financial statement of one or more prior period.

Error may occur due to Mathmatical mistakes , mistake in applying of accounting policies , Oversight of facts and misinterpretation of Facts.

Lets see an example

A co. had sold its plant of which book value at that time was 10000 & the plant sold for 8000in the year 2009. they credited the P/l a/c (Considered as profit) by the amount of8000 instead of booking the loss by2000

In 2011 that mistake has discovered by the co.

the Calculation of amount which should be debited in current year P/l a/c

in 2009 they have booked profit instead of loss

by the profilt of 8000 P/L was increased by 8000 in 2009.

while they had not booked loss of 2000 , the profit of the year 2009 will also increased by 2000

8000+2000 = 10000

so in order to make the profit correct we have to Debit the current year profil & loss A/c By10000

Then the entry will be :-

P/l a/c Dr. 10000

To Prior Period Item 10000

(This is an Example of Misinterpretation Of Facts)

I hope this will be understandable for u but if anyone think i m wrong then please let me know