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Accounting

vijay l (Employed) (31 Points)

03 July 2014

Company purchases a car against bank loan. Whether it is necessary to show the car as an asset in the B/S against loan (liability).

Can it be charged it off during the year. if so, explain.

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13 Replies

Hitesh (Chartered accountant) (382 Points)
Replied 03 July 2014

If car is purchased then it should b shown as asset and respective liablity should b shown seperately ....... Only yearly depreciation can b written off to p&l.......

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Amit Gupta (Account ) (67 Points)
Replied 03 July 2014

yea you need to show the car as an assest In your balance sheet & also you need to show the bank loan against the car it will be show in your liability side in your balance sheet & dep. charge on yearly base 15% am

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vijay l (Employed) (31 Points)
Replied 03 July 2014

Thanks for the reply. Let me give a situation: A company enters in to contract with the customer to provide certain services. As a part of service, car need to be provided to customer. The company get a capex loan for purchasing the car. Now the car has to be invoiced to customer. In this scenario, whether company needs to capitalise or charge it off against the revenue received from customer.

RADHIKA JALAN (agarwal) (1521 Points)
Replied 03 July 2014

Car shall be shown under fixed assets and loan against car shall be shown under Liabilty in B/S. Dep @ 15% shall be written off in P&L p.a

3 Like

RADHIKA JALAN (agarwal) (1521 Points)
Replied 03 July 2014

In that situation company has to capitalise it...

2 Like

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vijay l (Employed) (31 Points)
Replied 03 July 2014

Thanks Radhika. But clarify, once the car is invoiced to customer. how to show the same in the B/S. Let me explain the case: As per the service contract with customer, the company is supposed to invoice the car to customer. Purchase of various assets along with car is funded by bank through capex loan. I am invoicing the car to customer as part of the contract. Once it is invoiced, it need not be part of the company asset. In this scenario, can the company show a capex loan without the asset that is invoiced to customer.

RADHIKA JALAN (agarwal) (1521 Points)
Replied 03 July 2014

clarify whether the car is invoiced to customer just as per service contract?..you are not selling it to customer right.

3 Like

RADHIKA JALAN (agarwal) (1521 Points)
Replied 03 July 2014

clarify whether the car is invoiced to customer just as per service contract?..you are not selling it to customer right?..it is still ur asset and it is serviced for enhancing its capacity,hence it shall be capitalised...

2 Like

RADHIKA JALAN (agarwal) (1521 Points)
Replied 03 July 2014

plzzz anyone correct me wherever am incorrect and explain it further...thnx in advance..

3 Like

vijay l (Employed) (31 Points)
Replied 04 July 2014

Thanks Radhika, will explain u further, its a construction contract. As per the contract, the company need to provide cars to customer....Company gets a loan towards various equipment required for construction. Along with that the car is purchased. It is getting invoiced to customer...Pls Mind..it is AS 7 based accounting.. Sales is recognised to the extent of cost incurred with margin under percentage of completion method. whether invoiced to customer or not,the company need to recognise sales for the car provided to customer. Suggest pls.. Capitalise or charge it off...

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(Guest)

Originally posted by : RADHIKA JALAN
	plzzz anyone correct me wherever am incorrect and explain it further...thnx in advance..

u always correct.. carry on..

3 Like

RADHIKA JALAN (agarwal) (1521 Points)
Replied 04 July 2014

Hello vijay Any asset which is giving future economic benefit and the expense incurred for enhancing its capacity is to be capitalised as much i knw.....as much AS 7 is related am not much sure abt it so jst wait for others to reply on this query...

3 Like

guru (CA Business) (121 Points)
Replied 07 July 2014

I feel What Amit has said, answers the question. To know more about accounting you can log on to www.reachaccountant.com

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