Effect to discount received in next year

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Mitesh Gandhi (Querist)
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25 April 2009 what will be the accounting effect in this given case:

My client bought a Asset worth Rs. 82 lakh in FY 2007-08 & capitalise the Rs 82 Lakh.In FY he paid Rs.40 lakh & remaining Rs. 42 Lakh is carried as Creditors in Balance Sheet.
Now in FY the creditor is ready to accept Rs.32 Lakh ( or Rs.10 lakh Less).
How the accounting woul be done.
Should i show the asset At Rs 72 lakh and restate the accounts or should i show Rs. 10 lakh as other income in FY 2008-09 and pay tax on increased income.

Please reply with some case laws and Judgements on the facts

sundharabahu

sundharabahu (Expert)
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25 April 2009 In the first financial year, the asset is to be capitalized at full value (i.e. cash paid and considerationa agreed to be paid). In the second financial year, when there is remission, in liability, it is a capital receipt which will have to be adjusted against asset carrying cost. It is reduction in carrying cost of the asset. The depreciation should accordingly be reworked to write the asset within the balance of life of asset.
For income tax purpose, the receipt on account of capital transactions is not a trading income or deemed profits for being taxed as business income.

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