Need help/ comments

Manish Kumar Sharma (Article) (103 Points)
Replied 10 August 2013

1) You should try to convince your manager that this kind of practices are not good, firstly, your books not going to give a true and fare view of your companies affairs , secondly if you file your I.T Return without considering those accrued income and somehow income tax authorities found out that then they will impose penalty for concealment of Income.

2) This expense should be divided on time basis, and balance pertaining to next year should be carried to balance sheet.

3) As far as valuation of land is concerned, first of all you have to found out whether it is an long terms Investment, short terms Investment or stock in trade (if company is in the business of buying and selling of land), if it is short terms Investment or stock in trade then you have to value it at cost or Fare Value/NRV whichever is lower, however if it is long terms investment then you have to see whether the fall in the value of land in the market is permanent or temporary, if it is temporary then you should value land at Rs. 70/- Lacs and if it is permanent then you should account for the fall and value the land at Rs. 60/- Lacs, because long term Investments are valued at cost unless there is a permanent fall in the market,

4) You should book expenses for the month of March in March itself; you should use accrual basis, it is one of the fundamental accounting assumptions that entity are using accrual basis of accounting.

1 Like

Sandeep (GM) (50 Points)
Replied 10 August 2013

Thanks Manish.

Please also comment on below.

A Company has made investment in Reliance shares at Rs 856 per share. The price of the Share on 31^st.March 2013 is Rs 950.At what rate the investment should be valued on 31^st.March 2013 and why

Manish Kumar Sharma (Article) (103 Points)
Replied 12 August 2013

Current Investment should always be valued at Cost or fare market value which ever is lower, and long term investment should always be valued at cost unless there is permanent fall in the market price,

in your case since the market value has been not fallen, so you should value it at cost, ie., Rs. 856/- per share.

Shivani (Learner) (1881 Points)
Replied 13 September 2013

What entry shall we pass if show land at Rs. 60 lakh assuming that the fall in land prices is permanent?

Shivani

Manish Kumar Sharma (Article) (103 Points)
Replied 17 September 2013

Profit & Loss A/c Dr. XXX

To Land A/c XXX

Shivani (Learner) (1881 Points)
Replied 17 September 2013

manish sir

if we show 10 lakh as loss in this year PL Account, our profit for the current year will take a severe hit and it will distort the profit and loss of current year.

I feel we should spread this loss of 10 year over some period of time.

Please guide with journal entries.

thanks

Samrendra (Asst. Manager- Internal audit) (221 Points)
Replied 18 September 2013

Diminution in value of Land is of permanent nature therefore it should be reduced to market value by charging it to profit & Loss Account in the year in which such reduction happens instead of spreading over several numbers of year according to conservatism principle of Accounting.

Conservatism principle of Accounting.

If a situation arises where there are two acceptable alternatives for reporting an item, conservatism directs the accountant to choose the alternative that will result in less net income and/or less asset amount. Conservatism helps the accountant to "break a tie." It does not direct accountants to be conservative. Accountants are expected to be unbiased and objective.

The basic accounting principle of conservatism leads accountants to anticipate or disclose losses, but it does not allow a similar action for gains. For example,potential losses from lawsuits will be reported on the financial statements or in the notes, but potential gains will not be reported. Also, an accountant may write inventory down to an amount that is lower than the original cost, but will not write inventory up to an amount higher than the original cost.

Shivani (Learner) (1881 Points)
Replied 20 September 2013

so the entry will be

P& L 10 lakh

To Land 10 Lakh

Right ?

Manish Kumar Sharma (Article) (103 Points)
Replied 21 September 2013

right..

1 Like

Samrendra (Asst. Manager- Internal audit) (221 Points)
Replied 22 September 2013

Right

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