Accounting for cost of a fixed asset ordered but not received.

1441 views 3 replies

pushpa kumar

section officer

39 Points Joined March 2009

An autonomous organisation following accrual method of accounting has made a purchase order for a bus costing Rs.50.00 lakh on 01.03.2016. An advance of Rs.10 lakh was paid along with purchase order. The bus was not received by the institute by the end of 31.03.2016. However, in the balance sheet on 31.03.2016, the institute has disclosed an amount of Rs.50.00 lakh i.e. cost of bus under capital work in progress under assets side and Rs.40.00 lakh i.e. balance amount payable on receipt of bus as current liability under liabilities side. Does the accounting is acceptable under accrual method of accounting? The bus was actually received in April 2016 i.e. in 2016-17. Our contention is, the institute should restrict to show the advance of Rs.10.00 lakh under current assets in the B/s as on 31.03.2016 and should not create any liability for the balance amount payable as no liability has been accrued to the institute as on 31.03.2016 for payment of Rs.40.00 Lakh.

Replies (3)

Abhishek Kumar Yadav

Articleship Trainee

37 Points Joined June 2016

Here the company should have actually shown the advance paid for the bus as advance to supplier in the closing of previous year balance sheet. How can asset not in possession of the company be called as "Work-In-Progress". Then comes the point whether you can show the current liablity or not. Since the bus has not been received by the company in the previous year , I have assumed that the liability to pay for the bus shall only arise once the company receives the BUS. Hence the treatment for the purchase of bus made by the company is incorrect.

You are advised to go throughly the accounting standard for the same.

Niraj Kumar Sinha

Sr. Officer SPSIL

648 Points Joined August 2012

This ten lac should be shown in Balance Sheet in

Note 14 Long Term Loans and Advnace as Advance for capital Goods

pushpa kumar

section officer

39 Points Joined March 2009

The auditee argues that, as per AS-4, it is event occured after balance sheet date but before approving the accounts. The condition existing on balance sheet date i.e. advance given for bus, has been changed before certifiying the accounts., i.e. bus has been delivered but not used. Hence,it is an adjustable event. They want to disclose it as capital work in progress under fixed assets and want to create liability for the balance amount payable.

Whether their stand is correct as per provisions of AS-4?