Effect of debit note on accout of delay in supplying the fa

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vinit powle (Querist)
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04 February 2012 Sir,
An asset was acquired by the company in F.Y.2010-11.Accordinly the cost of asset was brought in the books of accounts in the F.Y.10-11,the depreciation was accordingly charged in F.Y.10-11.

However now in the current financial year i.e.f.y.11-12, the company has raised a debit note on the supplier of the asset because of reason being that there was some delay in supplyin the asset on time in F.Y.10-11.Now the company wants to adjust the debit note amount from the cost of the asset.Is Company justified in doing so???.Becoz even the depreciation was already charged on the full amount of asset last year.

Further will it be proper to take the effect of debit note to income account instead of crediting the asset account???? coz I feel if this is done,the users of the financial statement will then get true picture of the transaction as to what has company actually received on account of delay in supplying the asset and what is actual cost of the asset.Please help me with this and let me know what is the correct treatment under relevant accounting standards,schedule VI,tax laws

CA Suraj Lakhotia

CA Suraj Lakhotia (Expert)
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04 February 2012 ***This answer may not be valid in the light of EAC opinion given below***

The amount debited to the Vendor for delayed supply of Asset can be reduced from the cost of the asset. Taking the amount ot Income account would not be proper as the same does not take the character of Income.

AS-6 provides for revising the depreciation amount when the value of a Fixed Asset under goes a change prospectively. If the amount is material, a note to this regard can be put up in the Financial Statements.

vinit powle

vinit powle (Querist)
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04 February 2012 Thank u Sir....I completely agree with your view.However Kindly clarify if there are such cases as to if there is delay in supplying the asset and debitnote is sent to the supplier for delay charges,then in every case it shouldbe adjsuted with the cost of the asset?? Because many a times it is seen in case of huge assets there always exist an agreement between the supplier and company wherenthe supply delay charges cause is stipulated...So will it be every time adjusted with cost of the asset?? especially in cases where asset is produced in stages and for every stage due date is decided with the supplier?

CA Suraj Lakhotia

CA Suraj Lakhotia (Expert)
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04 February 2012 But the Expert Advisory Committee differs.

The following opinion may be referred to where the EAC has opined that Liquidated damages should not be adjusted to the cost of Asset and taken to Income/Expenditure account.

https://220.227.161.86/eac/eacfinal/vol13/15.htm

vinit powle

vinit powle (Querist)
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04 February 2012 Thanks a lt sirji!

CA Suraj Lakhotia

CA Suraj Lakhotia (Expert)
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04 February 2012 It even improved my understanding.

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