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Accounting for fixed assets

Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 asked

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.

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6 Answers
Open uri20170510 32134 1ue0f38?1494421710 answered

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.** ** ------------------------------------------------------------------------

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Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 answered

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)

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Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 answered

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

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Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 answered

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

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Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 answered

First charge it 100 % then subsequently next year reduce cost and record entry for reduction through p/l.

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Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 answered

First Year, Carry the Asset Book value at Complete 100 Rs & show 20 Rs as Capex Advance.. Post Waiver of INR 20, Reduce the same from the Asset Value itself. Adjust for the depreciation already charged on INR 20, that will be a credit to P&L

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