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Horse

Shivani (Learner) (1881 Points)

24 April 2014

1-May-13 Bought a horse for transportation of goods Rs. 250000.

23-Apr-14 Horse died. Rs. 5000 is recovered from the sale of its
carcass.

What will be the journal entries on 1-05-13, 31-3-14 and 23-4-14.

Any depreciation?

            thanks
            shivani
            shivaniadream @ gmail.com

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15 Replies

CA Deepesh Ruhela (Keen to Learn) (3271 Points)
Replied 24 April 2014

1 May 2013 Live Stock A/c Dr. 250000 (Asset)

To Bank A/c 250000

No depreciation allowed on Live stock (horse)

31.03.2014 No entry

23.04.2014 P & L A/c Dr. 245000

Bank A/c Dr. 5000

To Live Stock 250000

In Income Tax, Deduction allowed only for Rs.245000 u/s36(1)(vi) for FY 2014-15.

Regards

1 Like

harish kumar (to update) (24 Points)
Replied 24 April 2014

Livestock is not covered in the definition of a.s.6. It doesnt mean that amount of depreciation will nt be charged. it is wrong. U hv to still comply a.s.1 which says that when u opt accounting policy that time u hv to think about selection of accounting policies.i.e.by prudence so n so.bt in practical life livestock is revalued at the end of each yr and difference amt is charged in p&l as depreciation.

Rahul jain (LEARNING & TEACHING) (435 Points)
Replied 24 April 2014

bt in this problem what are the possibilites for valuation of horse...AS-2 says u should value ur stock at cost or NRV whichevr is lower bt horse is not stock as per AS-2..it is live stock on which AS-2 not apply now...bcoz the horse has been died now the question arose the value of horse on 31-3-14????? what it will be and on which basis?

CMA Hardik Shah (Trainee) (33 Points)
Replied 24 April 2014

Not applicable :- AS 2 AS 6 & AS 10 So, As much i know that On 31-3-14 horse is alive and so value of horse in books is 250000/-. And Mr. Harish forget about real life in the question live stock's entries given by Mr. Deepesh is correct.

CMA Hardik Shah (Trainee) (33 Points)
Replied 24 April 2014

In real life also it should be treated as per requirement of AS so Mr. HARISH live stock cannot be revalued OR NO depreciation entry should be posted in that matter in books as per AS

harish kumar (to update) (24 Points)
Replied 24 April 2014

Mr. Hardik,first of all i know tet livestock is excluded from a.s.6, 10 n 2.bt u dont know about a.s.1

harish kumar (to update) (24 Points)
Replied 24 April 2014

I take one example which surly clear ur concept and helpful 4 ur exam. Hardik ltd.purchases horses worth 80000 for transporting material on 1-4-2013. Useful life of horses was estimated 5 years, therefore company decided to write off depreciation on horses as per slm over 5 years.comment.

harish kumar (to update) (24 Points)
Replied 24 April 2014

I think ur answer will be like a.s.6 is not applicable on livestock hence it sud nt be depreciated. I will also agree with u. Bt u will hv to tell tet com.is following a.s.1 which says that when u opted a/cing policy is based on prudence. Hence company may use such method.bt in real life revaluation method i.e.replacement cost is used.

CMA Hardik Shah (Trainee) (33 Points)
Replied 24 April 2014

Mr. HARISH I ADMIRE ur knowledge but Ms. Shivani has just a query of jounal entries and depreciation and her answer has already discussed so let us not discuss other knowledge related matter.. Ok..

Kashyap (student) (51 Points)
Replied 24 April 2014

I agree with Mr.Deepesh Ruhela's suggested entries provided, "Live Stock A/c." is grouped under Non-current assets as the intention of purchase of horse was for transportation (conducting business activities). It was not held for resale and hence no applicability of AS-2. Though the horse in the present scenario satisfies the criteria of being classified as a depreciable asset, AS-6 specifically provides that it does not apply to livestock. Hence whatever is the unrealised amount will be charged to Profit and Loss account.

I would also like to mention that since the query does not specify whether a non-corporate entity bought the horse or a corporate entity bought the horse, I restrict my answer to Income tax permissible deduction.

Overe Johnson (Audit) (21 Points)
Replied 24 April 2014

hello am new here

Rahul jain (LEARNING & TEACHING) (435 Points)
Replied 26 April 2014

ultimately hoga kya?

Shivani (Learner) (1881 Points)
Replied 27 April 2014

Dear Members

I dont know what AS says and I havent studied them in depth.

But i have following points to make:

If you say no depreciation is to be charged on horse though its a fixed asset as some AS does not apply to livestock, then isnt it unfair that we charge the whole 245000 to the PL account of the year in which the horse died.

if say i had 20 horses and all died in one year due to some disease or natural calamity, then will we book Rs. 49 lakhs (Rs. 245000 X 20) in the year in which horses died and substantially burden the financial statements of that FY (in which horses died).

We all know that horse has a particular life span say 40 years, and suppose when we bought it it was aged 20. We also agree that the benefit we are going to derive from horse is spread over for more than 1 year and also we are going to benefit for the next 20 years appx.

then shouldnt it be a prudent practice to write off 245000/20 = Rs. 12250 each year so that all Financial Statements over a period of next 20 years reflect true and fair view of our accounts.

After all we shouldnt loose the sight that presenting true and fair view of business state of affairs is the basic purpose of preparing accounts.

Regards

This horse is taking members on the ride for sure :-)