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ED accounting

Sandeep (Chartered Accountant) (60 Points)

28 July 2010

Hi friends, plz suggest me in this aspect:

Suppose we have made provision for excise duty on the closing stock of finished goods remaining on the date of balance sheet. The entry would be:

P&L A/c Dr

To Prov for ED

This is fine.

But my doubt is, in the next financial year, how will you adjust the 'Prov for ED' A/c

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16 Replies

kalyan (Manager - Accounts) (99 Points)
Replied 28 July 2010

entry would be

Excise Duty A/c (not P&L)

To Prov for Excise duty

In next year,

Reverse the same.... then actual excise duty ll be booked in nxt yr

Sandeep (Chartered Accountant) (60 Points)
Replied 28 July 2010

Originally posted by : kalyan
	entry would be Excise Duty A/c (not P&L) To Prov for Excise duty In next year, Reverse the same.... then actual excise duty ll be booked in nxt yr

Do you mean to say that it does not route through P&L a/c?

I want to make my doubt more clear.

1) When u purchase the raw material the entry would be:

Purchases A/c Dr 920

CENVAT Cr. A/c Dr 80

To Creditors A/c 1000

2) Later when the FG is sold the entry would be:

Debtors A/c Dr 2000

To Sales A/c 1840

To ED A/c 160

3) Payment entry:

ED A/c Dr 160

To CENVAT Cr. A/c 80

To PLA (Bank/cash) 80

This is how the accounting is done. Right?

Now, when I create a provision, do you mean to say, it does not route throug P&L A/c?

Please give me the entries also along with your suggestions.

Kumar Gaurav (Going...to be C.A soon...) (1624 Points)
Replied 28 July 2010

i fully agree with Mr. sandeep entry

waiting for others response.

CA. BIJENDER KR. BANSAL (ACA, B.COM) (8143 Points)
Replied 02 August 2010

AGREED , ALL ENTRY MADE BY SANDEEP IS CORRECT.

ACCOUNT NAME IS TO BE

CENVAT INPUT A/C : FOR CENVAT ON RAW MATERIAL

CENVAT CAPITAL A/C : FOR CAPITAL GOODS A..C

EXCISE DUTY PAYABLE A/C : DUTY PAYABLE FOR SALES

EDUCATION CESS AND HIGHER EDUCATION CESS A/C SHOULD BE SHOWN SEPRATELY FOR EACH HEAD I.E FOR CENVAT AS WELL AS DUTY PAYABLE AND PLA ALSO.

1 Like

Sandeep (Chartered Accountant) (60 Points)
Replied 03 August 2010

I need the entries for creation of provision for the finished goods lying in stock as on the date of B/S.

And also the utilization of that provision.

CA. BIJENDER KR. BANSAL (ACA, B.COM) (8143 Points)
Replied 03 August 2010

PLEASE TELL WHAT KIND OF PROVISION YOU WANT TO KNOW.

IF YOU WANT TO KNOW FG STOCK ENTRY THEN IT WILL BE

CLOSING STOCK- FG DR

TO PROFIT & LOSS A/C

IF SOMETHING ELSE, THEN SPECIFY

Sandeep (Chartered Accountant) (60 Points)
Replied 03 August 2010

I want to create the provision for ED as on date of BS i.e., 31st March

Is my entry correct?

Excise duty A/c (P&L A/c) Dr

To Provision for ED (Current liabilities and provisions)

If the above entry is correct, how will you close the Provision for ED A/c in the next year.

Rineesh Raghavan (MD) (108 Points)
Replied 03 August 2010

Hi Sandeep,

The next year, the provision entry will be reversed at the beginning. The very purpose of the entry will understood in light of the provisions contained in the Excise Law, whereby Excise Duty is attracted (LEVY) at the time of manufacture (of FG), but paid only at the time of removal (DELIVERY).

When FG is in stock, it is already manufacrured and therefore attracts levy of ED. But, this duty need not be paid till the time of removal. Since, the levy is attracted, the ED amount is "estimated" on the finished goods and entry passed. This is done to ensure that all the Assets and Liabilities are properly stated.

In fact the closing stock value is also increased by the same amount of duty (Refer Guidance Notes in this regard.) Net Result = In P&L A/c = Closing Stock stand increased, and an ED Expense also stands increased. In Balance Sheet = Stock on Asset includes ED. Current Liabilities includes ED on Closing STock.

Hope this clarifies.

Rineesh

Sandeep (Chartered Accountant) (60 Points)
Replied 03 August 2010

Sir, I understood what you said.

But please give the entries for creation of provision and for incr. the closing stock.

And also the reversing entries in the next year.

Rineesh Raghavan (MD) (108 Points)
Replied 04 August 2010

Hi Sandeep

1. For Creation of Provision as at 31st March

ED A/c Dr (P&L A/c) (Not Part of Trading A/c)

To Provision for ED A/c (Balance Sheet - Current Liabilities and Provisions)

2. For inclusion in Closing Stock as at 31st March

No separate entry. The usual closing stock entry value is increased by estimated ED

Closing Stock A/c Dr

To Trading A/c

Next Year

3. By bringing in Opening Stock, automatically, it is debited to your trading account

4. Reversal Entry for Provision

Provision for ED A/c Dr

To ED A/c

Note: Generally ED is not routed through P&L Account or Trading A/c. It is considered outside of the Income Statement. Only in this case, for the limited purpose of creating a provision, it passes through P&L A/c (and not trading account).

Rineesh

1 Like

vijay singla (learner) (340 Points)
Replied 04 August 2010

i think entry should be

Finished stock a/c Dr

to provision for excise duty

the above entry is based on the fact that excise duty is chargable on the finished goods but payable on the time of removal. excise duty does not affect profit because seller collect it from buyer and pay to excise deptt.

Kashyap (Business) (24 Points)
Replied 10 September 2012

I am having same trouble. I maintain my accounts in Tally (Accounts with Inventory). So I cannot manually make any entries to affect the values of closing stock (both finished goods and raw materials).

Till the day, I had no problems - as we were not providing for any Provision for Excise on Finished Goods. But this year, our auditors insist on making the provision. For the time being, in Provisional Balance Sheet (as prepared by the auditors), the Provision for Excise Duty on Finished Goods stands at Rs. 1.5 Lac and the value of Finished Goods is increased by the same.

Also they have calculated the provision for excise @ 12% - which is B.E.D. But the total Duty payable is @ 12.36% (including 2% Edu. Cess & 1% Sec. & Higher Sec. Edu. Cess). So is 12% provision correct.

But how do I bring this effect in my Tally accounting.

Also how do I reverse the same in the next year.

Please provide your guidance.