Nature of treating warranty

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kunal Jain (Querist)
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12 April 2012 Around 4-5 months back i have purchased 6 new cars for my staff. i m now planning to take 2 years extended warranty for new office cars from the date of expiry of normal warranty of 2 years. Rs.10599/- to be paid per car towards extended warranty.

my query is

a) Whether this amount is to be capitalized or not.
b) If it is to be treated as revenue expenditure, TDS is applicable or not

CA Kishore Tallam

CA Kishore Tallam (Expert)
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14 April 2012 This amount cannot be capitalised. These expenses are in the nature of revenue and has to be charged off. however, since the warranty is for 2 years, u can take part of amount to prepaid expenditure if these are paid.
Also, TDS will be applicable u/s 194C.

kunal Jain

kunal Jain (Querist)
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16 April 2012 Kishore sir, thanks for ur reply.

But u have any justification regarding nature of revenue.
I have asked many people they told me it should be capitalized but they dont have any justification

CA Kishore Tallam

CA Kishore Tallam (Expert)
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17 April 2012 Refer Para 12 of AS 10 which says that any subsequent expenditure that increases the future benefits from the existing asset beyond its previously assessed standard of performance is included in the gross book value.
Taking an extended warranty does not add any value to the existing asset. It simply covers ur repairs cost of the cars. Hence, these expenditure has to be charged off to P&L.

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