Advance given for land & building

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Abhishek Roy Choudhury (Querist)
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09 October 2015 Dear Sir,
An Assesse who is a Doctor by Profession has purchased a flat in a co- operative society in the year 2013 and at that time he has given a advance amount of Rs. 5.00 Lac to the society and every year he pays certain amount of money to the society for maintenance, repairing and other various purposes. Now my question is whether the amounts paid by him every year will be added with the Advance for Land & Building of Rs. 5.00 Lac in the Balance Sheet or it can be shown as Drawings in the Liabilities Side of the balance sheet. Please suggest which is justified because I am quite confused about the matter.

Your valuable reply would help me solve the matter. So please reply as early as it is possible.

Thanks in Advance,
Abhishek Roy Choudhury.

Abhishek Roy Choudhury

Abhishek Roy Choudhury (Querist)
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10 October 2015 Dear Sir,
Please Reply, Waiting for your valuable reply at the earliest.

Thanking you,
Abhishek Roy Choudhury.

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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14 July 2024 In accounting for the amounts paid annually to the cooperative society by the doctor, here’s how you should consider the treatment:

### Treatment of Amounts Paid Annually:

1. **Annual Payments for Maintenance and Other Purposes**:
- The amounts paid annually to the cooperative society for maintenance, repairs, and other purposes should generally be treated as expenses in the Income Statement (Profit and Loss Account) rather than as additions to the value of the flat.

2. **Advance for Land & Building**:
- The advance amount of Rs. 5.00 lakh given to the cooperative society at the time of purchasing the flat in 2013 is typically treated as an asset in the Balance Sheet under "Loans and Advances" or "Prepaid Expenses".
- This advance is an asset because it represents an amount paid in advance for future benefits (use of flat, services provided by society, etc.).

### Justification:

- **Expense Nature of Annual Payments**: The annual payments made for maintenance, repairs, etc., are akin to operational expenses necessary to maintain the flat and its amenities. These expenses reduce the doctor's income and are not capitalized into the value of the flat itself.

- **Advance as Asset**: The advance of Rs. 5.00 lakh made in 2013 is recorded as an asset because it represents a prepayment for services or benefits to be received in the future (such as maintenance services from the cooperative society).

### Balance Sheet Presentation:

- **Liabilities Side**: Drawings typically refer to withdrawals of funds by owners from their business. Since the amounts paid annually to the cooperative society are expenses related to maintaining the flat, they should not be categorized as drawings. Drawings are usually applicable in sole proprietorships or partnerships where owners withdraw funds for personal use.

- **Asset Side**: The advance of Rs. 5.00 lakh should be shown on the asset side of the Balance Sheet under a suitable category like "Loans and Advances" or "Prepaid Expenses". This reflects the amount paid in advance and still to be utilized for future services or benefits from the cooperative society.

### Conclusion:

To summarize, in the doctor's Balance Sheet:
- **Assets Side**: Show the advance of Rs. 5.00 lakh under a suitable asset category.
- **Income Statement**: Reflect the annual payments made to the cooperative society as expenses in the Profit and Loss Account (Income Statement).

This treatment aligns with accounting principles where expenses are recognized in the period they are incurred, and advances are shown as assets until they are utilized or expire. If you are unsure or need specific guidance tailored to your situation, consulting with a professional accountant or tax advisor would be advisable. They can provide guidance based on the exact details of the transactions and local accounting standards.

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