Accounting treatment on capital gain

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Champ (Querist)

25 September 2011 Dear Friends,

I want 2 know how the journal Accounting treatment made of booking long term capital gain of making indexation of cost?

For ex: sale 100, cost 50 but indexation cost 55 then in current year what accounting entry will be passed for incorporating 5 rs in the books.

Pls reply as soon as possible.

Dintakurthi Tirumala

Dintakurthi Tirumala (Expert)

25 September 2011 Indexation cost is for the Tax purpose computation only as per Income tax act but not for accounting. So you need not to accounting the indexation cost. Other wise you can accounted it as increase in the value of the asset as like revaluation of asset in such case the accounting entry is
1)Asset a/c Dr Rs.5000
To Revaluation a/c Rs.5000
(Being increase in the value of the asset due to the revaluation)
2)Revaluation a/c Dr Rs5000
To General Reserve a/c Rs.5000
(Being balance in the revaluation reserve transferred to general reserve account)
Note: the second entry would be pass at the time of sale of the asset with the balance in the revaluation reserve for the concern asset.
Other wise i think it also possible
1) Asset a/c Dr Rs.5000
To increase in value of asset a/c Rs.5000
2) increase in value of asset a/c Dr Rs.5000
To Profit and loss a/c Rs.5000

I think no need for accounting of indexation cost. However wait for some other experts decision.
OM SAI SRI SAI JAI JAI SAI

Champ

Champ (Querist)

25 September 2011 Thanx for the answer....
This is a perfect answer.......

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Dintakurthi Tirumala

Dintakurthi Tirumala (Expert)

25 September 2011 Thank you
OM SAI SRI SAI JAI JAI SAI