Journal entry of capital losses

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Kumar Pradeep (Querist)

18 August 2011 Dear Sir/Mam,

Kindly inform me about the journal entry of the following :-

Q. Once A Businessman was going with his hors-cart to bring some goods for his day-to-day transaction of his business. In the way, the Horse died, so he decided to sell his cart & finally sold it for Rs. 5000/-

(Original cost price of Horse is Rs. 8000/- & of Cart is Rs. 7000/-)

Kindly give the journal entry.

Thanking you,

Sijo Philip

Sijo Philip (Expert)

19 August 2011 Loss on death of horse 8000 Dr
Loss on sale of cart 2000 Dr
Cash 5000 Dr
To Horse 8000 Cr
To Cart 7000 Cr

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Kumar Pradeep

Kumar Pradeep (Querist)

19 August 2011 Dear Philip Sir,

Thank you so much but on this regard, I like to saying you that,
Cash A/c 5000 Dr
P/L A/c 10,000 Dr
To capital a/c 10,000 cr
To cart a/c 5,000 cr
(Kindly inform me is it right or not ?, & the horse & cart are the capital assets ,so the loss on it,how it will be treated in accounting )

Sijo Philip

Sijo Philip (Expert)

19 August 2011 crediting capital account is not correct for this. credit should be to the asset account. regarding debiting p/l, technically correct but debiting the accountwoould be more correct.

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C A S.S.Agarwal, M.Com.,LL.B,

C A S.S.Agarwal, M.Com.,LL.B, (Expert)

19 August 2011 Horse in a non appreciable asset and you should not have kept it under fixed assets. Anyhow, if you have done it then for accounting entries Mr Philip has given correct answer but from income tax point of view the loss for death of horse shall not be considered. So you can credit horse account and debit your capital account for loss of horse. For loss on sale of cart, it is a capital loss. If you have claimed depreciation then it is a short term loss or otherwise you have to claim in P & L but no credit will be allowed for income tax purpose and the loss will be added in your income.

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Kumar Pradeep

Kumar Pradeep (Querist)

19 August 2011 Thanking you so much Respected Sir S.S.Agarwal Ji... I am too grateful to you for the learning ,Hope, in future I may learn more from you. Thanks for your co-operation.

Sijo Philip

Sijo Philip (Expert)

20 August 2011 "But from income tax point of view the loss for death of horse shall not be considered" I do not agree with the statement of Mr.Agarwal, since the same needs to be considered under section 36(1)(vi). If i am wrong pls correct me.
Considering this, the entry I have given is correct under IT Act and Accounting practice.

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