Prior period item
This query is : Resolved
03 August 2010
Query:
A company carrying a business of establishing pipelines beneath the surface. It made a contract with another company to place the pipelines for which that company agreed to give a sum of Rs. 10 lakh. During initial stages company expected the total costs will be upto Rs. 5 lakh and the rest will be their profit.
At the time of digging the workers found a rocky surface coming in between of their site. Thus to destruct that, the company purchased dynamites due to which it went high on costs and the total cost came out to be Rs. 15 lakh. Because of which the company suffered a loss of Rs. 5 lakh for which the provision was not made by that company.
Will this be a prior period item or not?
A company carrying a business of establishing pipelines beneath the surface. It made a contract with another company to place the pipelines for which that company agreed to give a sum of Rs. 10 lakh. During initial stages company expected the total costs will be upto Rs. 5 lakh and the rest will be their profit.
At the time of digging the workers found a rocky surface coming in between of their site. Thus to destruct that, the company purchased dynamites due to which it went high on costs and the total cost came out to be Rs. 15 lakh. Because of which the company suffered a loss of Rs. 5 lakh for which the provision was not made by that company.
Will this be a prior period item or not?
CMA Ramesh Krishnan
(Expert)
03 August 2010
It is not prior period item, it is part of the project cost which is un committed during budget, so it is not prior period item
03 August 2010
The expense can not be treated as prior period item. Its a part of their regular activity.
03 August 2010
agreed, it work is done during the year as regular activity . It is not prior period exp.
In this case, if you have recd bill for estimated cost of rs. 5 lacs already , then supplement bill for increased cost is to be taken in that year in which payment is made.
In this case, if you have recd bill for estimated cost of rs. 5 lacs already , then supplement bill for increased cost is to be taken in that year in which payment is made.
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