07 July 2010
Hi.. I have a practical problem regarding Prior Period Expenses
X is working for a group of companies . The main concern has several branches apart from other companies under the Group. The main company and the other company auditors are different. and they are registered as two seperate entities. One staff working in the other company for two years (say XY) was transferred to the main company (ABC) and in the same year (2009) he left the organisaion. The XY company is a new company started few years back and audit formailities not yet completed. The XY company didnot create any provision for End of settlement of the concerned employee. The Salary for the period employee worked in ABC was transferred in ABC books. However ABC didnot provide any provision for the various benefits like Gratuity Bonus, Leave encashment and last two month salary when the employee was employed and same not paid.
The salary settlement was done in 2010 ,
The amount involved is around INR 260000/-
How do we account this as this is not current year expenses.
07 July 2010
Rs260000/- is to be disclosed as prior period item separately, in the PL of ABC in the current Financial Year.
For your Reference Prior Period Items
15. 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.
16. The term ‘prior period items’, as defined in this Statement, refers only to income or expenses which arise in the current period as a result of errors or omissions in the preparation of the financial statements of one or more prior periods. The term does not include other adjustments necessitated by circumstances, which though related to prior periods, are determined in the current period, e.g., arrears payable to workers as a result of revision of wages with retrospective effect during the current period.
17. Errors in the preparation of the financial statements of one or more prior periods may be discovered in the current period. Errors may occur as a result of mathematical mistakes, mistakes in applying accounting policies, misinterpretation of facts, or oversight.
18. Prior period items are generally infrequent in nature and can be distinguished from changes in accounting estimates. Accounting estimates by their nature are approximations that may need revision as additional information becomes known. For example, income or expense recognised on the outcome of a contingency which previously could not be estimated reliably does not constitute a prior period item.
19. Prior period items are normally included in the determination of net profit or loss for the current period. An alternative approach is to show such items in the statement of profit and loss after determination of current net profit or loss. In either case, the objective is to indicate the effect of such items on the current profit or loss.
08 July 2010
08 July 2010
Hi Thanks, However i would like the practical application of it.. How do you show it in the books of accounts and in the profit and loss a/c. What entries you pass and do you open a account called Prior Period Expenses.. Do u qualify this in the balance sheet While computing Income tax, will this be allowed or disallowed..
08 July 2010
You may open a prior period account at the transaction stage and debit the expense directly to that account.Else,you may account for it as per usual accounting procedure debiting the amount in the employee cost head as applicable ,followed by transfer to prior period account. 1)Employee Cost Dr 260000 To Salary Payable 260000
2)Prior Period cost Dr 260000 To Employee cost 260000