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Sale of an asset and receipt of payment in installments.

Manoj Pandit (student) (139 Points)

24 April 2014

If a business entity sells its asset on a particular date and agrees to get the sale consideration in installment(no written agreements exist and it extends to 2 financial years) without any interest, which way is appropriate to book the profit from the sale of that asset..?!.. Thank You in advance. PS: Curious to know the various accounting treatments available for this particular issue.

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9 Replies

TKKKKKK (PRACTICING CA) (3268 Points)
Replied 25 April 2014

capital gain will be taxable when asset is sold. So show full sale value as consideration.

cash a/c Dr

Debtor for sale of asset Dr

To Asset

when payment is received in installment,

Cash a/c Dr

To Debtor for sale of asset

Manoj Pandit (student) (139 Points)
Replied 26 April 2014

Whether it will be shown in b/s at the year end if there's still some installments remaining..?! If yes, how..?! Please.explain.. Thanks in advance

TKKKKKK (PRACTICING CA) (3268 Points)
Replied 26 April 2014

In balance sheet,

block of asset

opening balance

add purchase of asset

Less sale value of asset

Capital gain/capital loss

I advise you to refer capital gain chapter of pcc/final

Manoj Pandit (student) (139 Points)
Replied 26 April 2014

And when the profit from sale of that asset should be recognized in the p&l..?!..

Manoj Pandit (student) (139 Points)
Replied 26 April 2014

No sir i understood the tax treatment but curious to know the procedure of accounting treatments in the books and financial statements..

TKKKKKK (PRACTICING CA) (3268 Points)
Replied 26 April 2014

It is recognised in the year of sale. No matter payment is received in installment.

Manoj Pandit (student) (139 Points)
Replied 26 April 2014

"Capital gain may be different from the profit arrived from the sale of asset in the financial books"..is ma notion correct regarding this particular transaction sir..?!

TKKKKKK (PRACTICING CA) (3268 Points)
Replied 26 April 2014

Ya it will be different. Accounting and tax treatment will be different. and profit from both point of view will be also different. But tax will be applicable under income tax act.

Manoj Pandit (student) (139 Points)
Replied 26 April 2014

Thank you sir.But I've one more doubt regarding the treatment of financial profit. I mean will it be wrong if we recognize the profit to the proportionate of the installment amount recieved( by creating a suspense a/c on the date of sale to the full value of profit and dr. It as we go on receiving the installments)..?!