We are purchase a fixed assets. As per payment terms 80% amount paid after receiving fixed assets balance 20% amount pay after 1 year. On completion of 1 year seller not claimed 20% amount. what is the treatment of this 20% amount.
Dear Shreenath, With regard to accounting for fixed assets, kindly note the following: Say you purchase for Rs. 100 on 01/04/2014- On day 1 – Accounting entry passed FA Dr. Rs. 100 To Creditors. Rs. 100 On subsequent payment of 80% – Accounting entry passed Creditors – A/ c. Dr Rs. 100 To bank/cash Rs. 100 Now wait for 3 year, for time barred limitation. (note any creditor cannot legally demand for their receivables from the end of three years from the date of due for payment) During this period, if the creditors does not demand for the money, then write back the amount and adjust with the cost of asset: Creditors a/c Dr Rs. 20 To FA a/c Rs. Rs. 100 Write back depreciation on Rs. 20 for 3 years say 10% depreciation rate. Provision for depreciation (Rs. 20 * 3 years *10%) Dr. Rs. 6 To Write back of depreciation a/c Rs. 6 Write back of depreciation a/c Dr. (Rs. 20 * 3 years *10%) Dr. Rs. 6 To Profit and Loss a/c Rs. 6 ** > **Kindly note, pursuant to applicability of Companies Act 2013, concept of depreciation rate is no longer in existence, depreciation > is to be charged based on estimated useful life of the asset.** ** ------------------------------------------------------------------------
Hi Friend, You need to pass following journal entries for adjusting 20% amount not required to be paid: Sundry Creditors A/C........Dr. (20% of Total Value) To Fixed Assets A/c (20% of Total Value)
As you are saying seller not claimed till date 20% amount, so in this case your creditors will be at , 100% amount less payment you have been made i.e 20 % , so you can treat 20% as discount received from the seller and reduce it from the cost of fixed assets as price adjustments. Also you already charged depreciation on 100% amount but due to discount your cost will be 80% of the amount, and you should charge depreciation on 80% of the amount, so excess depreciation charged also would get transfer to profit and loss accounts. Suppose cost is Rs.100 Depn@10% = Rs.10 Depn@10% on Rs. 80 will be Rs.8 (If you treat 20% as discount received) So Net Amt to be transferred to Profit and loss account will be =Differential Depreciation
In this situation it is better to make the payment to seller as per contract. Otherwise you need to wait for 3 years to make any adjustment in the book as the limitation period is 3 years. Then you need to pass a journal entry adjusting fixed assets with the liability. Nothing will be charged to pl except adjustment for depreciation
First charge it 100 % then subsequently next year reduce cost and record entry for reduction through p/l.