Prior period item not accounted

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This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

18 August 2014 Hello,
I have one client who have purchased lift in f.y 2011-12 of which payment has been made of Rs 30 Lakh,which was accounted as purchase.And in next year 20 lakhs payment were made which was accounted as payment as advances & not as purchase.So,now what is the action to rectify this amount as lift & rectify the amount as advance which is alrweady for lift.What is disclosure requirment in audit report

Vivek Hebbar

Vivek Hebbar (Expert)

20 August 2014 The answer to this query is very tricky since the quantum of the error with respect to the total purchases, profits, assets is not known. Also, the nature of the entity and its business is not mentioned since whether the lift is a part of the stock item or a fixed asset needs to be determined. Assuming the entity to be a company and the lift to be a fixed asset, the amount of Rs.30 lakhs needs to be treated as prior period item in the P&L account of current period. The asset can be brought into the books of the current year by considdering its put-to-use / installation date as April 01. The debit to the asset account has to be Rs.50 lakhs with credit to the P&L account of Rs.30 lakhs (as mentioned above) and to Advance Account of Rs.20 lakhs. The audit report need not be qualified since the appropriate effect has been given in the books, but there has to be an "Emphasis" paragraph (SA of the ICAI) with respect to Rs.30 lakhs.

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