Fixed assets to be expensed out resulting nil value

This query is : Resolved

sourlin outer (Querist)
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23 December 2024 In previous year if we book expense as fixed assets how can we rectify in the current year? How can we book expense in income statement whole of fixed assets wrongly booked in previous year? ( also in the case of small remaining amount of fixed asset like Rs.350) Neither we can show 100% depreciation nor we can show it as disposal. If you have any solution please advice. Thanks in advance

Aashok Kumar Sharma

Aashok Kumar Sharma

(Expert)
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12 August 2025 Hey! This kind of mistake—booking a fixed asset as an expense—can definitely be tricky to fix, but it's manageable. Here’s how you can correct it in the current year:

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### Scenario:

* In **previous year**, a **fixed asset was booked as an expense** (say, in the P\&L directly).
* You want to **correct this error** in the current year.
* Also, there’s a **small remaining amount** like ₹350 that can't be depreciated or disposed easily.

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## How to Rectify:

### 1. **Adjusting the Wrong Expense Booking**

Since the asset was expensed earlier, the **balance sheet does not show the asset**. You want to treat it as if it was capitalized.

* **Journal Entry:**

| Particulars | Debit | Credit |
| ---------------------------- | ----- | ------ |
| Fixed Assets (Balance Sheet) | ₹XXX | |
| Prior Year Expense Account | | ₹XXX |

**Explanation:**
You reverse the earlier expense by crediting it, and create the asset in the books now.

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### 2. **Depreciation**

* From the current year onwards, **depreciate the asset as per applicable rates**.

* For the **small amount like ₹350**:

* If the amount is **immaterial**, you can write it off as a **one-time expense** now.
* Or, you can **dispose it off** by crediting the asset and debiting a disposal/loss account.

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### 3. **If Prior Year Books Are Already Closed**

* The above adjustment affects **prior year’s P\&L**, so it’s technically a **prior period error**.
* Disclose the adjustment in **current year’s financial statements** as a **prior period adjustment** (under OCI or in notes).
* This way, you **do not disturb prior year’s finalized statements**, but correct the error transparently.

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### 4. **Disclosure**

* Explain this as a **prior period error correction** in notes.
* Mention the nature, amount, and impact on profit.

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## Summary Table

| Problem | Solution |
| ------------------------ | ------------------------------------------- |
| Asset expensed last year | Reverse expense, create asset now |
| Small balance like ₹350 | Write off as expense or treat as disposal |
| Prior year closed | Adjust in current year as prior period item |

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If you want, I can draft the **journal entries** for your specific numbers or a sample note for disclosure. Just let me know!

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